Mexican Economic Interdependence

Max Vernier

Topic:

Mexico has developed a trade interdependence with the United States. Using basic macro theories and models, we can see that this is unhealthy. In basic terms, if the US sneezes, Mexico will catch a cold. What are the positives and negatives of this interdependence, what does a long term relationship look like, how can Mexico break this unhealthy tie?

Sources/Literature Used:

The primary article I used is a Congressional Research paper called “U.S.-Mexico Economic Relations: Trends, Issues, and Implications” by M. Angeles Villarreal. In the paper he gives a very detailed history and update of current US-Mexico trade relations and outlines several potential/past issues and implications. From this paper I draw most of my opinion that interdependence is not healthy.

The second major article “Determinants Of Intra-Industry Trade: The Case Of Mexico” By E. M. Ekanayake “explains the extent of intra-industry trade (IIT) in Mexico’s foreign trade, and tests empirically various country-specific hypotheses concerning the determinants of intra-industry trade between Mexico and its major trading partners.” In the abstract, the author says:

“The results of the econometric analysis corroborate the predictions of the theoretical models. The results indicate that the extent of Mexican intra-industry trade is positively correlated with the average income levels, average country size, trade intensity, trade orientation, the existence of a common border, the existence of a common language, and the participation in regional integration schemes, while it is negatively correlated with income inequality, inequality in country size, distance, and trade imbalance.”

I use this econometric approach just to give substance to the overall critique of trade dependence. This serves as a good platform to analyze trade and its implications.

The other articles used were minor. Some were academic critiques of trade dependence, others were simply form the BLS giving stats on trade numbers.

Data/Findings and Analysis/Conclusion:

For data and approach I used the Ekanayake paper.He created a formula for “measurement of intra-industry trade” that he indexed for many countries, focusing on commodities. He also looked at several trade agreements (focus on NAFTA) and ran regression against several hypotheses regarding trade and its factors. The conclusion of the paper was that Mexico’s biggest trading partner is the US and gave several indicators as to why/how Mexico chooses trading partners. This gives insight to the current situation and shows several implications to how the US-Mexico relationship is fragile, especially for Mexico. I used these results to aid my critiques based off the Villarreal paper and others. My personal conclusion is that it is clear that Mexico has developed a dependence on the US in several major industries, and it is not sustainable in the long run.