Three Essays on the Effects of Mexico’s Trade Liberalisation Policies, 1962-2011

In the 1980s, Mexico utilised trade liberalisation policies as part of an overarching globalisation policy initiative, which has extended to their policies through the 1990s and 2000s. Nevertheless, there lacks a comprehensive and long term discussion of the effect these policies have had on the Mexican economy over the last thirty years, especially in relation to their performance pre- liberalisation and the intersection of multiple economic crises. Therefore, this thesis studies the impact of the trade liberalisation policies on different aspects of the Mexican economy, in order to provide a robust discussion and understanding of how these policies can impact a developing country. Given the previous policies, what was the impact of these policies on not only economic trade, but also income inequality and the agriculture sector? Chapter 1 provides an introduction with a discussion on the introduction and motivation of the thesis. Chapter 2 utilises an augmented gravity model of trade to evaluate the changes in trade determinants in Mexico over 50 years. The importance of Chapter 2 is to understand how trade agreements and trade policy changed their trade flows, before and after the trade liberalisation period. The chapter builds an augmented gravity model to apply cultural, geographic, and historical factors to study the impact of changing determinants of trade while utilising a Heckman Sample Selection method in addition to OLS via robust standard errors. This chapter’s main contribution to the literature and research question is that while cultural variables and NAFTA were important to Mexico’s exports in the 1990s, this impact has waned in recent years. Chapter 3 evaluates the effect that these trade changes have had on their income determinants, for both GDP per capita and manufacturing wages in Mexico. Chapter 3 is also a necessary discussion, given the link between trade policy and income changes, as discussed in the literature (Rodriquez and Rodrik, 2000; Redding and Venables, 2004; Head and Mayer, 2007; Hanson, 2005) The chapter applies a market access measure from Redding and Venables (2004) in addition to recommended variables from the literature representing health, education, skills, social infrastructure, and physical geography. The main results from this chapter are that while foreign market access is important for multiple other countries, for Mexico it is only a significant indicator after trade liberalisation and there exhibits a significant distributional difference in the effect of these policies on income in Mexico. Chapter 4 utilises propensity score matching to analyse the effect of PROCAMPO, an agricultural subsidy enacted to compensate farmers for the negative effects of NAFTA, over three waves (2002, 2005, and 2009). PROCAMPO was enacted in 1994, to partially compensate farmers adversely affected by NAFTA, which liberalised agricultural trade after decades of state protection. The main result from this chapter is that there is an even greater distributional difference in the effect of the subsidy, with the majority of the positive treatment effects being experienced by larger farms, while small farms did not experience a substantial treatment effect in consumption, investment, or income. Chapter 5 concludes with policy recommendations and proposed further research.