Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/83705
Authors: 
López Noria, Gabriela
Year of Publication: 
2013
Series/Report no.: 
Working Papers, Banco de México 2013-10
Abstract: 
This paper analyzes the effect of the North American Free Trade Agreement (NAFTA) on Mexican manufacturing price cost margins (PCMs) for the period 1994-2003. Taking into account the sensitivity of each industry to the speed of the tariff reductions under NAFTA, the results show that PCMs immediately decreased once the second round of trade liberalization in Mexico had commenced in 1994. However, in subsequent years, no clear pattern emerges for these PCMs. Additionally, the paper accounts for the sensitivity of each industry to the initial level of its tariff and presents evidence showing that while NAFTA had an effect on the PCMs of the group of industries that liberalized in 10 years, no robust effect was found for the group of industries that liberalized in 5 years. The results on the group of industries that liberalized in 10 years suggest that NAFTA sharpened competition and exerted market discipline by forcing firms with market power to set prices closer to marginal costs. The findings on the group of industries that liberalized in 5 years suggest that additional factors may be also playing a role in the containment of their market power.
Subjects: 
PCMs
Trade Liberalization
NAFTA
JEL: 
F13
F15
L11
Document Type: 
Working Paper
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