Regional Integration and Productivity: The Experiences of Brazil and Mexico

Abstract

What is the impact of integration on productivity? What are the main channels? Is there anything specific about productivity effects in regional agreements? This paper tries to answer these questions by looking at the experience of Brazil and Mexico. We estimate firm-level productivity and test its causal links with trade and FDI variables. The results suggest strong trade related gains, with import discipline emerging as the dominant effect. The results on learning-by-exporting were mixed, with gains restricted to Brazil's regional and worldwide exports. On FDI, foreign firms appear to have had a positive impact on their buyers and suppliers in Mexico, but in Brazil, the overall impact was statistically insignificant on productivity levels and negative on productivity growth.

Keywords: Trade, productivity, Brazil, Mexico

JEL Classification: F1, O1