Working Paper: NBER ID: w4152
Authors: Steven Beny; Vittorio Gnu; Florencio Lopez-de-Silanes
Abstract: This paper considers the likely effect on the automobile industry of a free trade agreement between the U.S. and Mexico. As there are currently large restrictions on imports into Mexico, one important outcome of a free trade agreement would be the opening of the Mexican market to U.S. producers. This is consistent with the history of the international auto industry and the fact that the U.S.-Canada Auto Pact opened a new, large market to U.S. manufacturers. The current state of the Mexican auto industry is considered in great detail, suggesting that the Mexican industry will continue to prosper, increasing output but also relying heavily on production from U.S. owned plants and on inputs imported from the U.S. and Canada. However, much of the existing domestically oriented industry is likely to be replaced by other North American producers. Finally, an econometric demand analysis implies that economic growth together with declines in prices to world levels could rapidly expand the size of the Mexican auto market. The free trade agreement represents an opportunity for product diversification and rationalization in the auto industry.
Keywords: automobile industry; Mexico-US free trade agreement; trade policy; econometric analysis
JEL Codes: F13; L62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Free trade agreement between the U.S. and Mexico (F13) | Opening of the Mexican market to North American producers (F69) |
| Economic growth (O00) | Expansion of the size of the Mexican auto market (F69) |
| Declines in prices to world levels (F14) | Expansion of the size of the Mexican auto market (F69) |
| Opening of the Mexican market to North American producers (F69) | Replacement of the existing domestic industry by North American producers (L69) |
| Opening of the Mexican market to North American producers (F69) | Prosperity of the export-oriented sector of the Mexican auto industry (F14) |