NAFTA and Mexico's Less-than-Stellar Performance

41 Pages Posted: 13 Feb 2004 Last revised: 14 Aug 2010

See all articles by Aaron Tornell

Aaron Tornell

University of California, Los Angeles (UCLA) - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Frank Westermann

University of Osnabrueck - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Lorenza Martinez Trigueros

Bank of Mexico

Date Written: February 2004

Abstract

Mexico, a prominent liberalizer, failed to attain stellar gross domestic product (GDP) growth in the 1990s, and since 2001 its GDP and exports have stagnated. In this paper we argue that the lack of spectacular growth in Mexico cannot be blamed on either the North American Free Trade Agreement (NAFTA) or the other reforms that were implemented, but on the lack of further judicial and structural reform after 1995. In fact, the benefits of liberalization can be seen in the extraordinary growth of exports and foreign domestic investment (FDI). The key to the Mexican puzzle lies in Mexico's response to crisis: a deterioration in contract enforceability and an increase in nonperforming loans. As a result, the credit crunch in Mexico has been far deeper and far more protracted than in the typical developing country. The credit crunch has hit the nontradables sector especially hard and has generated bottlenecks, which have blocked growth in the tradables sector and have contributed to the recent fall in exports.

Suggested Citation

Tornell, Aaron and Westermann, Frank and Martinez Trigueros, Lorenza, NAFTA and Mexico's Less-than-Stellar Performance (February 2004). NBER Working Paper No. w10289. Available at SSRN: https://ssrn.com/abstract=499314

Aaron Tornell (Contact Author)

University of California, Los Angeles (UCLA) - Department of Economics ( email )

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Frank Westermann

University of Osnabrueck - Department of Economics ( email )

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Osnabrueck, D-49069
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CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

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Germany

Lorenza Martinez Trigueros

Bank of Mexico ( email )

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Piso 4
Col. Centro 06059, 06059
Mexico

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