Mexico has concluded various free trade agreements over the last decade, with NAFTA and the EU-Mexico FTA being the most important ones. In this paper, the effect of both agreements on bilateral trade is presented through descriptive statistics on the one hand, and by applying a time series analysis in the form of an export and import demand function on the other. The results of the graphical analysis indicate that the coming into force of NAFTA has led to a rise in Mexico’s trade with that bloc, even though the econometric analysis does not support the assertion that the conclusion of the agreement is responsible for that.
The EU-Mexico FTA has not led to a significant rise in Mexico’s exports to the EU, mainly due to transport costs. These costs are also the dominant factor in explaining exports from Mexico to its NAFTA partners, and therefore lead to the conclusion that the change in transport costs over time is more important than tariff reductions granted by the parties. Interestingly, Mexico’s imports from these two blocs are mainly determined by Mexico’s GDP and the exchange rate, rather than by transport costs.
Table of Contents
1 Introduction
2 Previous Research
3 Contents of both Agreements
3.1 NAFTA
3.2 The EU-Mexico FTA
4 Theoretical Framework of FTAs
4.1 Static Analysis
4.2 Dynamic Analysis
4.3 Political Economy
5 Development of Trade
5.1 Trade over GDP and Trade Shares
5.2 Commodity Groups
5.3 Summary
6 Econometric Analysis
6.1 Methodology: Time Series Econometrics
6.2 The Model
6.3 Regression Results - Export Demand Function
6.4 Regression Results - Import Demand Function
7 Conclusion
8 References
Research Objective and Scope
This thesis examines the impact of the North American Free Trade Agreement (NAFTA) and the EU-Mexico Free Trade Agreement on bilateral trade flows, providing a comparative analysis supported by descriptive statistics and econometric time series modeling.
- Comparative analysis of NAFTA and the EU-Mexico FTA.
- Evaluation of trade developments regarding GDP and specific commodity groups.
- Application of econometric models to identify determinants of import and export demand.
- Investigation into the influence of transportation costs versus tariff reductions.
- Assessment of whether these agreements have successfully diversified Mexico's trade partners.
Excerpt from the Book
4.1 Static Analysis
The static analysis deals with the questions whether or not preferential tariff reductions are welfare improving. If it was, this would be a reason for a country to form an FTA, since it wants to increase its welfare. The method to assess the welfare gains was first established by Viner (1950), who divided the effect of customs union (this also works for FTAs) into trade creating and trade diverting effects. If a FTA is trade creating, then a high cost producer of a good will be replaced by a low costs producer within the union after the tariff cut. Trade diversion occurs when a low cost outside producer is replaced by a high cost inside producer, who is only cheaper because of the preferential market access (Sloman, 2000) . A graphical demonstration facilitates the two possibilities.
Summary of Chapters
1 Introduction: Provides an overview of Mexico’s history with free trade agreements and defines the objective of comparing NAFTA and the EU-Mexico FTA.
2 Previous Research: Reviews existing empirical studies on the trade effects of NAFTA and the EU-Mexico FTA, highlighting the gaps this thesis aims to address.
3 Contents of both Agreements: Details the specific objectives, rules of origin, and institutional frameworks of both NAFTA and the EU-Mexico FTA.
4 Theoretical Framework of FTAs: Explains the static and dynamic economic rationales for entering free trade agreements, including concepts like trade creation, trade diversion, and political economy factors.
5 Development of Trade: Presents descriptive statistics on Mexico's trade performance, including trade-to-GDP ratios, import/export shares, and growth rates across key commodity groups.
6 Econometric Analysis: Outlines the time series methodology and models used to test the determinants of export and import demand for both trading blocs.
7 Conclusion: Synthesizes the main findings, suggesting that transport costs often outweigh tariff reductions and noting the limited success of the EU-Mexico FTA in diversifying Mexico's trade.
8 References: Lists the academic sources and data repositories used throughout the research.
Keywords
Mexico, Free Trade Agreement, NAFTA, EU-Mexico FTA, Time Series Analysis, Econometrics, Trade Creation, Trade Diversion, GDP, Export Demand, Import Demand, Transport Costs, Bilateral Trade, Maquiladora, Tariff Reductions
Frequently Asked Questions
What is the primary focus of this research?
This thesis focuses on comparing the trade effects of NAFTA and the EU-Mexico FTA on Mexico's economy, utilizing both descriptive statistics and econometric analysis.
What are the key themes addressed in the work?
The core themes include the theoretical basis for regional integration, real-world trade patterns post-agreement, the impact of transport costs, and the statistical determinants of bilateral trade flows.
What is the research goal?
The primary goal is to determine why the trade impacts of these two agreements differ and to identify which economic variables most significantly explain Mexico's bilateral trade with its major partners.
Which methodology is applied in this study?
The author employs time series econometrics, specifically estimating export and import demand functions using quarterly data and the first-differences method to ensure stationarity.
What topics are covered in the main section?
The main sections cover the background of the agreements, the theoretical framework for regional trade, longitudinal trade data analysis, and the results of regression models.
Which keywords best characterize this thesis?
Relevant keywords include NAFTA, EU-Mexico FTA, time series analysis, trade creation/diversion, and transport costs.
How does the study calculate transport costs?
The study derives transport costs by calculating the difference between the CIF (cost, insurance, freight) value of imports and the FOB (free on board) value of exports.
What conclusion does the author reach regarding the EU-Mexico FTA?
The author concludes that the EU-Mexico FTA has not significantly boosted Mexico's exports to the EU, largely due to high transport costs and stiff competition within the European market.
- Citation du texte
- Jan Prothmann (Auteur), 2005, Mexico's Free Trade Agreements - NAFTA and the EU-Mexico FTA in comparison, Munich, GRIN Verlag, https://www.grin.com/document/71615
