ECONOMIC INTEGRATION AND INDUSTRY LOCATION: Mexico-U.S. Economic Integration

The long history of Canada-U.S. trade makes its impact on industry location in Canada difficult to identify. Though the Canada-U.S. free trade agreement was passed in 1989, the United States has exerted a strong pull on Canadian industry for more than a century.

Perhaps for this reason, there has been little empirical work on how changes in Canadian trade policy have influenced industry location in the country.

Mexico, in contrast, offers a relatively clean case for study. The country has made the transition from a closed economy to an open economy in a remarkably short period of time. payday loan lenders

In 1985, Mexico ended its experiment with ISI and announced that it was joining the General Agreement on Trade and Tariffs. At that time, import licenses covered 92.2% of national production, the average tariff was 23.5%, and there were export controls on 85.0% of nonpetroleum exports (Hanson, 1997a). By the end of 1987, the Mexican government had abolished export controls, reduced import-license coverage to 25.4% of production, and cut average tariffs to 11.8%. Given Mexico’s proximity to the United States and relatively low U.S. trade barriers, trade liberalization for Mexico is tantamount to economic integration with its northern neighbor. Mexico-U.S. integration thus begins with Mexico’s 1985 trade reform — NAFTA merely finalizes a process that had been underway for nearly a decade.

In several recent papers, I use trade reform in Mexico as a natural experiment to examine the impact of changes in trade policy on the spatial and industrial organization of economic activity.