Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_7700.html
   My bibliography  Save this paper

The Impact of NAFTA on Prices and Competition: Evidence from Mexican Manufacturing Plants

Author

Listed:
  • Ayuma Ken Kikkawa
  • Yuan Mei
  • Pablo Robles Santamarina
  • Ken Kikkawa
Abstract
This paper assesses the impact of the North American Free Trade Agreement on Mexican manufacturing plants’ prices and markups. We distinguish between Mexican goods that are exported and those sold domestically, and decompose their prices separately into markups and marginal costs. We then analyze how these components were affected by reductions in Mexican output tariffs, intermediate input tariffs, and U.S. tariffs. We find that declines in these tariffs led to significant reductions in the marginal costs of Mexican products. However, prices of exported goods slightly increased as exporters increased their markups in response to declines in U.S. tariffs.

Suggested Citation

  • Ayuma Ken Kikkawa & Yuan Mei & Pablo Robles Santamarina & Ken Kikkawa, 2019. "The Impact of NAFTA on Prices and Competition: Evidence from Mexican Manufacturing Plants," CESifo Working Paper Series 7700, CESifo.
    • Handle: RePEc:ces:ceswps:_7700
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp7700.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. repec:clu:wpaper:0708-12 is not listed on IDEAS
    2. Nina Pavcnik, 2002. "Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(1), pages 245-276.
    3. Jan De Loecker & Pinelopi K. Goldberg & Amit K. Khandelwal & Nina Pavcnik, 2016. "Prices, Markups, and Trade Reform," Econometrica, Econometric Society, vol. 84, pages 445-510, March.
    4. Thierry Mayer & Marc J. Melitz & Gianmarco I. P. Ottaviano, 2021. "Market Size, Competition, and the Product Mix of Exporters," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 5, pages 109-150, World Scientific Publishing Co. Pte. Ltd..
    5. Laura Juarez & Daniel Casarin de la Cabada, 2018. "Downward Wage Rigidities in the Mexican Labor Market: 1996–2011," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2018), pages 129-180, November.
    6. Hallak, Juan Carlos & Sivadasan, Jagadeesh, 2013. "Product and process productivity: Implications for quality choice and conditional exporter premia," Journal of International Economics, Elsevier, vol. 91(1), pages 53-67.
    7. Levinsohn, James, 1993. "Testing the imports-as-market-discipline hypothesis," Journal of International Economics, Elsevier, vol. 35(1-2), pages 1-22, August.
    8. Maurice Kugler & Eric Verhoogen, 2012. "Prices, Plant Size, and Product Quality," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(1), pages 307-339.
    9. Mauro Caselli & Arpita Chatterjee & Alan Woodland, 2017. "Multi‐product exporters, variable markups and exchange rate fluctuations," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(4), pages 1130-1160, November.
    10. Esquivel, Gerardo & Rodriguez-Lopez, Jose Antonio, 2003. "Technology, trade, and wage inequality in Mexico before and after NAFTA," Journal of Development Economics, Elsevier, vol. 72(2), pages 543-565, December.
    11. Pinelopi Koujianou Goldberg & Rebecca Hellerstein, 2013. "A Structural Approach to Identifying the Sources of Local Currency Price Stability," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(1), pages 175-210.
    12. Mary Amiti & Jozef Konings, 2007. "Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia," American Economic Review, American Economic Association, vol. 97(5), pages 1611-1638, December.
    13. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
    14. Jan De Loecker & Frederic Warzynski, 2012. "Markups and Firm-Level Export Status," American Economic Review, American Economic Association, vol. 102(6), pages 2437-2471, October.
    15. Harrison, Ann E., 1994. "Productivity, imperfect competition and trade reform : Theory and evidence," Journal of International Economics, Elsevier, vol. 36(1-2), pages 53-73, February.
    16. Amit Khandelwal, 2010. "The Long and Short (of) Quality Ladders," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(4), pages 1450-1476.
    17. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
    18. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, vol. 93(4), pages 1268-1290, September.
    19. William Easterly & Norbert Fiess & Daniel Lederman, 2003. "NAFTA and Convergence in North America: High Expectations, Big Events, Little Time," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2003), pages 1-53, August.
    20. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
    21. Iacovone, Leonardo, 2012. "The better you are the stronger it makes you: Evidence on the asymmetric impact of liberalization," Journal of Development Economics, Elsevier, vol. 99(2), pages 474-485.
    22. Cajal-Grossi, Julia & Macchiavello, Rocco & Noguera, Guillermo, 2019. "International buyers' sourcing and suppliers' markups in Bangladeshi garments," LSE Research Online Documents on Economics 102612, London School of Economics and Political Science, LSE Library.
    23. Daniel A. Ackerberg & Kevin Caves & Garth Frazer, 2015. "Identification Properties of Recent Production Function Estimators," Econometrica, Econometric Society, vol. 83, pages 2411-2451, November.
    24. Alvaro Garcia-Marin & Nico Voigtländer, 2019. "Exporting and Plant-Level Efficiency Gains: It's in the Measure," Journal of Political Economy, University of Chicago Press, vol. 127(4), pages 1777-1825.
    25. De Hoyos, Rafael E. & Iacovone, Leonardo, 2013. "Economic Performance under NAFTA: A Firm-Level Analysis of the Trade-productivity Linkages," World Development, Elsevier, vol. 44(C), pages 180-193.
    26. Krishna, Pravin & Mitra, Devashish, 1998. "Trade liberalization, market discipline and productivity growth: new evidence from India," Journal of Development Economics, Elsevier, vol. 56(2), pages 447-462, August.
    27. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(2), pages 317-341.
    28. Loren Brandt & Johannes Van Biesebroeck & Luhang Wang & Yifan Zhang, 2017. "WTO Accession and Performance of Chinese Manufacturing Firms," American Economic Review, American Economic Association, vol. 107(9), pages 2784-2820, September.
    29. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
    30. Paula Bustos, 2011. "Trade Liberalization, Exports, and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinian Firms," American Economic Review, American Economic Association, vol. 101(1), pages 304-340, February.
    31. Javorcik, Beata & Iacovone, Leonardo, 2012. "Getting Ready: Preparation for Exporting," CEPR Discussion Papers 8926, C.E.P.R. Discussion Papers.
    32. Alla Lileeva & Daniel Trefler, 2010. "Improved Access to Foreign Markets Raises Plant-level Productivity…For Some Plants," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(3), pages 1051-1099.
    33. John Romalis, 2007. "NAFTA's and CUSFTA's Impact on International Trade," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 416-435, August.
    34. Beatriz de Blas & Katheryn N. Russ, 2015. "Understanding Markups in the Open Economy," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(2), pages 157-180, April.
    35. Jan De Loecker & Pinelopi Koujianou Goldberg, 2014. "Firm Performance in a Global Market," Annual Review of Economics, Annual Reviews, vol. 6(1), pages 201-227, August.
    36. Rafael Dix-Carneiro & Brian K. Kovak, 2017. "Trade Liberalization and Regional Dynamics," American Economic Review, American Economic Association, vol. 107(10), pages 2908-2946, October.
    37. repec:hal:spmain:info:hdl:2441/6g0gsihsjmn5snc9pb0jo6hhp is not listed on IDEAS
    38. Petia Topalova & Amit Khandelwal, 2011. "Trade Liberalization and Firm Productivity: The Case of India," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 995-1009, August.
    39. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    40. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Crowley, Meredith A. & Han, Lu & Prayer, Thomas, 2024. "The pro-competitive effects of trade agreements," Journal of International Economics, Elsevier, vol. 150(C).
    2. Banh, Thi Hang & Caselli, Mauro, 2022. "Foreign Competition, Skill Premium, and Product Quality: Impact of Chinese Competition on Mexican Plants," GLO Discussion Paper Series 1162, Global Labor Organization (GLO).
    3. Khan, Nazmus Sadat, 2020. "Revisiting the effects of NAFTA," Economic Analysis and Policy, Elsevier, vol. 68(C), pages 1-16.
    4. Besedes, Tibor & Kohl, Tristan & Lake, James, 2020. "Phase out tariffs, phase in trade?," Journal of International Economics, Elsevier, vol. 127(C).
    5. Kazunobu Hayakawa & Kenta Yamanouchi, 2024. "How does the reform of rules of origin affect firm performance in importing countries?," The World Economy, Wiley Blackwell, vol. 47(2), pages 837-856, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jan De Loecker & Pinelopi K. Goldberg & Amit K. Khandelwal & Nina Pavcnik, 2016. "Prices, Markups, and Trade Reform," Econometrica, Econometric Society, vol. 84, pages 445-510, March.
    2. Fieler, Ana Cecília & Harrison, Ann E., 2023. "Escaping import competition in China," Journal of International Economics, Elsevier, vol. 145(C).
    3. Jamil, Nida & Chaudhry, Theresa Thompson & Chaudhry, Azam, 2022. "Trading textiles along the new silk route: The impact on Pakistani firms of gaining market access to China," Journal of Development Economics, Elsevier, vol. 158(C).
    4. Alvaro Garcia Marin & Nico Voigtländer, 2018. "Product-Level Efficiency and Core Competence in Multi-Product Plants," 2018 Meeting Papers 737, Society for Economic Dynamics.
    5. Bas, Maria & Paunov, Caroline, 2021. "Disentangling trade reform impacts on firm market and production decisions," European Economic Review, Elsevier, vol. 135(C).
    6. Xunyong Xiang & Feixiang Chen & Chun†Yu Ho & Wen Yue, 2017. "Heterogeneous effects of trade liberalisation on firm†level markups: Evidence from China," The World Economy, Wiley Blackwell, vol. 40(8), pages 1667-1686, August.
    7. Jan De Loecker & Pinelopi Koujianou Goldberg, 2014. "Firm Performance in a Global Market," Annual Review of Economics, Annual Reviews, vol. 6(1), pages 201-227, August.
    8. Manova, Kalina & Yu, Zhihong, 2017. "Multi-product firms and product quality," Journal of International Economics, Elsevier, vol. 109(C), pages 116-137.
    9. Pham, Hoang, 2023. "Trade reform, oligopsony, and labor market distortion: Theory and evidence," Journal of International Economics, Elsevier, vol. 144(C).
    10. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2018. "Global Firms," Journal of Economic Literature, American Economic Association, vol. 56(2), pages 565-619, June.
    11. Bas, Maria & Strauss-Kahn, Vanessa, 2015. "Input-trade liberalization, export prices and quality upgrading," Journal of International Economics, Elsevier, vol. 95(2), pages 250-262.
    12. Saito, Hisamitsu, 2021. "Foreign direct investment and quality upgrading in Indonesian manufacturing," MPRA Paper 106770, University Library of Munich, Germany.
    13. Richard Bräuer & Matthias Mertens & Viktor Slavtchev, 2023. "Import competition and firm productivity: Evidence from German manufacturing," The World Economy, Wiley Blackwell, vol. 46(8), pages 2285-2305, August.
    14. Alvaro Garcia-Marin & Nico Voigtländer, 2019. "Exporting and Plant-Level Efficiency Gains: It's in the Measure," Journal of Political Economy, University of Chicago Press, vol. 127(4), pages 1777-1825.
    15. Stiebale, Joel & Vencappa, Dev, 2022. "Import competition and vertical integration: Evidence from India," Journal of Development Economics, Elsevier, vol. 155(C).
    16. Dobbelaere, Sabien & Kiyota, Kozo, 2018. "Labor market imperfections, markups and productivity in multinationals and exporters," Labour Economics, Elsevier, vol. 53(C), pages 198-212.
    17. Zhengwen Liu & Hong Ma, 2021. "Input Trade Liberalization And Markup Distribution: Evidence From China," Economic Inquiry, Western Economic Association International, vol. 59(1), pages 344-360, January.
    18. Fan, Haichao & Li, Yao Amber & Yeaple, Stephen R., 2018. "On the relationship between quality and productivity: Evidence from China's accession to the WTO," Journal of International Economics, Elsevier, vol. 110(C), pages 28-49.
    19. López Noria Gabriela, 2021. "The Impact of Trade Liberalization on the Mexican Automobile Industry: Evidence from the First 20 Years of NAFTA," Working Papers 2021-10, Banco de México.
    20. Bloom, Nick & Manova, Kalina & Teng Sun, Stephen & Van Reenen, John & Yu, Zhihong, 2018. "Managing trade: evidence from China and the US," LSE Research Online Documents on Economics 88703, London School of Economics and Political Science, LSE Library.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_7700. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.