From the Import Substitution Model to the Import-Export Model: Reassessing Mexico's Trade Liberalization Process During the Last Two Decades

This paper evaluates Mexico's trade liberalization policy and structural changes in the manufacturing industry and export structure throughout the last two decades. Using the System of National Accounts (SNA) of production and reclassifying it according to the Harmonized Tariff System (HTS), we assess the income elasticity of imports by Great Divisions of the SNA manufacturing production. This approach, using econometric panel data techniques allows an evaluation of the structural change, which pegs Mexico's exports to the international production network, considering that Mexico has transformed a substantial part of its industrial structure into a foreign assembly operation of USA's industry. Additionally, econometric estimations indicate that import elasticity has changed since the NAFTA. These results show an outlasting restriction to economic growth, very much in line with Thirlwall's law.