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Who Determines Mexican Trade Policy?

39 Pages Posted: 20 Apr 2016  

Marcelo Olarreaga

University of Geneva; Centre for Economic Policy Research (CEPR)

Jean-Marie Grether

University of Neuchatel - Institute for Economic and Regional Research (IRER)

Jaime de Melo

University of Geneva - Department of Political Economics; Centre for Economic Policy Research (CEPR); World Bank

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Date Written: September 1999

Abstract

During a period of trade liberalization (1985-89), when Mexican manufacturing experienced an important inflow of foreign direct investment, manufacturing sectors with heavy foreign direct investment received greater protection in import-competing sectors. With the move toward greater openness, the influence of industrial and foreign-investor lobbying on policy formation was reduced.

Using a political economy approach, Grether, de Melo, and Olarreaga analyze the pattern of protection in Mexico's manufacturing sector during the period of trade policy reforms (1985-89), when Mexico experienced significant trade liberalization and an important inflow of foreign direct investment.

They take into account the potential effect of foreign direct investment on endogenous tariff formation.

It turns out that the data support this analytic approach, in which the formulation of trade policy reflects political support, and in which the presence of foreign direct investment in the sector strongly affects the pattern of tariff protection before and after reform.

In Mexican manufacturing, especially, sectors with heavy foreign direct investment received greater protection in import-competing sectors, although the move toward greater openness was associated with a reduction in the influence of industrial and foreign-investor lobbying.

This paper - a product of Trade, Development Research Group - is part of a larger effort in the group to understand the political economy of trade protection. Marcelo Olarreaga may be contacted at olarreaga@worldbank.org.

Suggested Citation

Olarreaga, Marcelo and Grether, Jean-Marie and de Melo, Jaime, Who Determines Mexican Trade Policy? (September 1999). World Bank Policy Research Working Paper No. 2187. Available at SSRN: https://ssrn.com/abstract=629177

Marcelo Olarreaga (Contact Author)

University of Geneva ( email )

40 Boulevard du Pont-d'Arve
Genève, CH - 1205
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Jean-Marie Grether

University of Neuchatel - Institute for Economic and Regional Research (IRER) ( email )

Pierre-a-Mazel 7
Neuchatel, CH-2000
Switzerland
+41 32 718 13 56 (Phone)
+41 32 718 14 01 (Fax)

Jaime De Melo

University of Geneva - Department of Political Economics ( email )

40, boulevard du Pont-d'Arve
Geneva 4, CH-1211
Switzerland
+41 22 705 8273 (Phone)
+41 22 705 8293 (Fax)

HOME PAGE: http://www.unige.ch/ses/ecopo/demelo/Jaime.html

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

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