trade liberalization in mexico in the 1980s: concepts, measures and short-run effects

Trade Liberalization in Mexico in the 1980s: Concepts, Measures and Short-Run Effects

By

John Weiss

C o n ten t s : I. Introduction. - IL Definitions and Measures of Trade Liberaliza- tion. - IIL Trade Policy in Mexico. - IV. Liberalization and Performance. - V. Mexican Experience Post-1985. - VI. Conclusions.

I. Introduction

T rade l iberal izat ion has been in t roduced in m a n y developing countr ies over the last decade, of ten as pa r t o f St ructura l Ad- j u s tmen t P r o g r a m m e s . This p a p e r discusses the recent experi-

ence o f Mexico, an e c o n o m y tha t in t roduced a m a j o r t rade r e fo rm in the mid-1980s. I t begins by consider ing a l ternat ive defini t ions and measures o f t rade l iberalization, before examin ing some o f the consequences o f l iberal izat ion in Mexico, focusing on the m a n u f a c t u r i n g

sector.

II. Definitions and Measures of Trade Liberalization

Three al ternat ive defini t ions o f t rade l iberal izat ion can be identi- fied. The m o s t obv ious and intuit ive defini t ion is a significant reduc- t ion in cont ro ls - ei ther licences, quo ta s or taxes - on foreign trade. The second defines l iberal izat ion o f t rade as the stage a t which the share o f impor t s in the domes t ic m a r k e t increases substant ial ly. This defini t ion is l inked with the compet i t ive effect o f l iberalization, which is seen as a m a j o r s t imulus to domes t ic p roducers to i m p r o v e efficiency, t

The third defini t ion focuses on the incentive effect o f t rade con- trois. Here , t rade l iberal izat ion is equa ted with the gran t ing o f equal incentives to all t radeables , whether i m p o r t subst i tutes or expor tables .

Remark: The author wishes to acknowledge the computing assistance of Angels Clarke, the advice of Roland Clarke and Adriaan Ten Kate, and the comments of Vladimiro Brailovsky and an anonymous referee on an earlier draft. This paper is part of a wider study financed by the Overseas Development Administration, U.K. x This is the definition of liberalization that is implicit in Ten Kate [1992], for example, who gives an informed and useful discussion of trade reform in Mexico.

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By this definition, liberalization need not involve any major reductions in controls on imports, provided their incentive effect is balanced by equivalent subsidies to exporters. 2

A measure of the extent of trade liberalization is required if the process is to be monitored, or if its results are to be assessed. Various measures are possible corresponding to different definitions of the process of trade liberalization. From the first definition of a reduction in controls on trade, it is possible to construct direct indicators that measure the degree to which domestic production is protected: exam- ples are the proportion of production of an activity where competing imports are subject to import licensing or quota restrictions, or the average nominal tariff on competing imports, weighted either by domestic production or import values. Such indicators have the disad- vantage, however, that they may not be a good guide to the incentive effect of a trade control system. Nominal tariffs may be redundant or import licences may be easy to obtain, and thus create relatively little scarcity premia for imports in the domestic market. Simply examining the proportion of production subject to such licenses and how it changes over time may be misleading if the difficulty of obtaining the licences also changes.

Following from the second definition of liberalization, a simple indicator is the share of imports in internal demand for particular activities. This is a measure of ex-post import penetration but its main limitation is that competition from imports can be potential as well as actual. The threat of the potential entry of imports into the domestic market may not be indicated by actual import shares, particularly where other policies, such as fiscal or exchange rate policy, are work- ing to keep down import demand.

Finally, a third set of indicators follow from the third definition of liberalization based on its incentive effect. These are derived from direct comparisons of domestic and world prices for tradeables, and should pick up the effects of trade controls and potential or actual competition on domestic pricing. Where output prices alone are compared, the indicators will be nominal rates of protection (NRP) and where both output and input prices are included, they will be effective rates (ERP).

All three measures of liberalization are available for Mexico and changes in these measures are discussed below.

2 In their survey of liberalizing experiences in developing countries, Papageorgiu et al. [1990] adopt this definition based on neutrality of incentives. Formally, it is equivalent to the Bhagwati definition of an export-promotion policy [Bhagwati, 1988].

Weiss: Trade Liberalization 713

III. Trade Policy in Mexico

Prior to 1985 for most of the period from the early 1950s, Mexican trade policy is described conventionally as one of import substitution [Zabludovsky, 1989]. Three main forms of trade controls were applied - import tariffs, import licensing restrictions and official reference prices [Cavazos, 1977]. 3 Import licensing was the key form of trade control. However, the coverage of the licensing system and the difficulty in obtaining licenses varied over time, largely in response to the balance of payments situation. Nonetheless, the economy was far from closed and the net effect of these trade controls was less protec- tionist than in a number of other countries that have been character- ized as pursuing import substitution policies during this period. 4

The discovery of substantial oil reserves and the major increase in petroleum exports after 1977, coupled with external assistance from the IMF and heavy private borrowing, eased the foreign exchange situation considerably in the late 1970s. This allowed a partial relax- ation of the trade controls system, with a reduction in the proportion of imports subject to import licenses, and easier access to licences for goods included in the system.

However, with a fixed exchange rate that was appreciating steadily in real terms, a combination of rising international interest rates and declining oil prices created new foreign exchange difficulties in 1981. The renewed scarcity of foreign exchange meant that the reform measures introduced since 1978 were reversed with tariff increases in 1981 and a further increase in the coverage of the import licensing system.

The turning point in trade policy is generally seen as mid-1985. It appears that a weakening in the performance of non-oil exports was a key factor in convincing the administration of the need for trade liberalization as a means of removing constraints and biases against exporters. Therefore, despite a weakening of the trade balance the traditional policy of tightening import controls was abandoned. Ini- tially the main shift was in policy towards import licences. A decree of July 1985 took a major step in weakening the licensing system, so that the share of imports covered fell from 83% in 1984 to 37% in

3 Official reference prices are notional prices attached to particular imports and used as the basis for calculating tariff revenue. They are applied to combat under-invoicing of imports. 4 One source of comparison is effective protection estimates. Weiss [1990, Table 5.4] shows protection of manufacturing in Mexico to be considerably lower in 1960 than that in many other economies.

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Table - Mexico: Aggregate Indicators o f Trade Liberalization

1985 1986 1987 1988 1989 June Dec June Dec June Dec Dec Dec

ILC* ORP b AT c MS d

MST �9 N R P f ERP*

�9 Impor t licence coverage

92.2 47.1 46.9 39.8 35.8 25.4 21.3 19.8 18.7 25.4 19.6 18.7 13.4 0.6 0.0 0.0 23.5 28.5 24.0 24.5 22.7 11.8 10.2 12.5

9.3 9.3 9.0 9.0 9.3 9.3 13.1 14.6 7.5 7.5 6.8 6.8 7.0 7.0 9.5 11.0

- 1 1 . 0 - 2 6 . 0 - 3 2 . 0 - 3 5 . 0 - 3 1 . 0 - 2 7 . 0 - 2 1 . 0 - 2 5 . 0 - 1 3 . 0 - 2 9 . 0 - 3 2 . 0 - 3 6 . 0 - 3 3 . 0 - 2 8 . 0 n.a. n.a.

as a proportion of domestic production. - b Official reference price coverage as a proportion of domestic production. - c Average nominal tariff; weighted rates of tariff revenue to import value. - d Import share in internal demand for manufacturing at constant prices. Annual figures only are given. - e Imports in GDP at 1980 prices. - f Nominal protection for total tradeable production; measured by direct price comparisons. - g Effective protection on total tradeable production; measured by direct price comparisons.

Source: Ten Kate and de Mateo [1989a], Ten Kate [1989; 1990], SSP, Sistema de Cuentas Nacionales. Mexico D .E , various issues.

1985. Less dramatic reductions in coverage continued in subsequent years so that by 1988, only 20% of imports required licences.

Table 1 summarizes various alternative aggregate measures of trade liberalization. It can be seen that by the alternative definitions the timing of the introduction of liberalization varies somewhat. In terms of removal of controls on trade, it is clear that 1985 was the turning point. Although some of the licences that were removed in July 1985 were for goods not produced in the country, the reduction in coverage was very substantial.

However, the import coefficient in GDP and the share of imports in domestic markets did not rise significantly until 1988, so that if one uses the second more restrictive definition of liberalization, based on actual import competition, 1988 was the key year [Ten Kate, 1992]. The relatively slow response of imports to the removal of controls is explained largely by exchange rate policy. From 1985 to the end of 1987, a deliberate policy of exchange rate undervaluation was pursued with the aim of cushioning domestic import-competing producers from the initial effects of liberalization.

Over the period 1982-87, the exchange rate was changed through stepwise devaluations combined with a crawling peg policy, and from 1985 the aim was to set the nominal crawl at a rate that was above the


inflation differential with the US, to generate a significant real depreciation (see Table 2). This policy was only halted at the end of 1987 with concern over the inflationary consequences of a prolonged period of exchange rate undervaluation [Ten Kate, 1989]. However, viewing liberalization in terms of changes in import share has its limitations. The total import coefficient was higher in 1980 than it was at the end of the decade when tariffs were lower and licensing much less comprehensive. Therefore, by a strict interpretation of this definition the trade regime did not become more liberal over the decade.

From the third definition, based on the incentive effect o f liberalization, a different picture emerges. Some tariffs were increased in 1985 in an attempt to at least partially replace licensing with tariff protection, but significant tariff reductions came in 1987. Since the end of 1988, the objective has been to establish a broadly uniform system of effective protection. By late 1989, the trade-weighted average nominal tariff was around 10%. Official reference price coverage was also increased in 1985, however in 1987 reference prices were removed for most goods.

In terms of the incentives created by tariffs, it is important to stress that for some activities tariff protection was redundant as early as the late 1970s. This was largely the result o f price controls, for example for foodstuffs, or producer subsidies, for example for petroleum products [Ten Kate and de Mateo, 1989a]. However, after 1982 and the series of devaluations of the peso (see Table 2), the 'law of one price' appears to have worked particularly poorly. Detailed quarterly estimates of

Table 2 - Movement in Nominal and Real Exchange Rate, 1981-90

Nominal exchange rate a Real exchange rate b (pesos/US dollar) (1970 = 100)

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

25 90.8 57 124.2

150 135.2 185 110.9 310 106.8 638 155.9

1,405 169.8 2,289 140.3 2,483 127.6 2,838 123.4

a Annual average of market rate. -b Rise implies a depreciation in the exchange rate.

Source." Banco de Mexico, various issues.

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nominal protection suggest that for most activities domestic producers of tradeables increased their prices by much less than the rise in the domestic currency price of comparable foreign goods at the new exchange rate. This failure of the law of one price has been put down to uncertainty, with firms unsure of their pricing strategy in a changing market and preferring not to raise prices by the full extent of devalu- ation to maintain market share [Ten Kate and de Mateo, 1989b].

The consequence was the emergence of negative NRP and ERP for most branches after 1982. Further, despite the existence of positive import tariffs and the maintenance of the import licensing system virtually intact up to 1985, protection became increasingly negative during 1985 - 87 (see Table 1). These negative NRP and ERP estimates are picking up the under-valuation of the exchange rate from 1982 on- wards, since in purchasing power parity terms with negative protection expenditure of a given income on domestically produced tradeables is commanding more goods than if the same expenditure is converted into foreign exchange and spent on foreign goods.

Further over 1985-89, the dispersion in nominal protection (as measured by the standard deviation) hardly changed at all, so that the range of world to domestic price ratios was not reduced. This implies that relative domestic prices did not move closer to world prices over this period, despite the removal of licensing for imports and the reduction in tariffs [Ten Kate, 1992].

In terms of the balance of incentives, this had already shifted in favour of exportables and against import substitutes prior to the liberalization of 1985. As early as 1983, effective protection on export sales was found to be higher than on domestic sales, due to the negative NRP in the domestic market, and in 1985 and 1986 on average value- added on domestic sales was 30% and 35%, respectively, below that on exports [de Mateo, 1988]. A policy of "ultra-export promotion" was already being pursued prior to liberalization [Bhagwati, 1988]. Only at the end of the decade with a gradual fall in the average NRP and an appreciation of the exchange rate there was a move towards more neutral incentives.

IV. Liberalization and Performance

Expectations differ on the likely effect of trade liberalization on economic performance. For example, Papageorgiu et al. [1990] conclude that across a number of liberalizing developing countries significant gains have been recorded in the short run (within a four-year


period). Ten Kate [1992] suggests that significant gains will take 5 to 10 years to emerge, whilst critics of liberalization question whether any real gains will result. In assessing these arguments it may be helpful to establish the mechanisms by which liberalization may im- prove performance (see the surveys by Pack [1988] and Havrylyshyn [1990]).

First, there is the initial shock effect of liberalization on previously protected high cost domestic producers. Either the threat of potential competition or the actual arrival of imports may stimulate producers to greater efficiency. This implies a reduction in technical inefficiency and can be represented diagrammatically in a conventional competitive 2-good model as a move from a point within to a point on the production possibility frontier.

Secondly, there is the resource allocation effect as resources move in response to the new set of prices generated by the removal of trade controls. This is the standard gains associated with a move to free trade, and arises from a reallocation of resources to activities where productivity is higher at world prices. Improvements of this type involve movements along a production possibility frontier.

Thirdly, there are the dynamic longer-term effects. Here some of the arguments are often expressed vaguely, but access to greater economies of scale in world markets and faster technical change stemming from a more competitive environment, normally figure prominently. Unlike the previous mechanisms, which imply once-for-aU gains, these dynamic effects are associated with a higher growth path, and therefore cumulative improvements over time. Diagrammatically they are illustrated by an outward shift in the production possibility frontier.

These three effects are not inevitable, however, and it is clear that their empirical significance will vary between different situations. Fur- ther, the speed at which these different effects are likely to operate will vary. The initial shock effect and the relative price effect are essentially short term and may be fully operative in the four-year period referred to by Papageorgiu et al. [1990]. However, the dynamic effects are likely to take longer to work through the economy, as they will often require new investment to capture economies of scale and embody new technologies. It is these longer-term effects that Ten Kate [1992] seems to have in mind in referring to a 5-10 year period before the effects of liberalization are felt fully.


V. Mexican Experience Post-1985

In Mexico , f r o m the d a t a avai lable it is t o o s o o n to perceive m a j o r l onge r - t e rm effects f r o m l iberal izat ion. H o w e v e r , its s h o r t - t e r m consequences pa r t i cu la r ly fo r m a n u f a c t u r i n g , c an be s tudied. These re la te p r inc ipa l ly to its s h o c k effect, s ince as n o t e d earlier, by 1989 relat ive d o m e s t i c pr ices h a d still n o t m o v e d s igni f icant ly c loser to w o r l d levels, despi te f o u r years o f r e fo rm. I f re la t ive prices d o n o t ad jus t one c a n n o t expec t a n y s igni f icant pr ice effect o n re source rea l loca t ion .

A t the m a c r o - e c o n o m i c level af ter l ibera l iza t ion p e r f o r m a n c e has been d i s a p p o i n t i n g a n d well be low the ave rage fo r the l iberal iz ing e c o n o m i e s su rveyed by P a p a g e o r g i u et al. [1990] in the sho r t r un af ter the i n t r o d u c t i o n o f their t r ade reforms. Table 3 c o m p a r e s M e x i c o ' s p e r f o r m a n c e f r o m the mid-1980s wi th the ave rage fo r 31 l iberal iz ing e c o n o m i e s ove r va r ious t ime pe r iods a n d fo r a s u b - g r o u p o f those w h o

Table 3 - C o m 7arative Experience with Trade Liberalization (% p.a.)

All ~ Sustained d Mexico 1 e Mexico 2 f

All Sustained Mexico 1 Mexico 2

All Sustained Mexico 1 Mexico 2

Year before liberalization

Year

1" 2 3

Average for period after

4 liberalization b

4.4 4.7 3.6 1.7

Grow~ ~GDP 4.7 5.4 5.3 6.0 5,6 6.1 5.4 5.8 6.8 6.0 2.6 -3 .6 1.7 1.4 0.~5 1.4 3.1 3.9 n.a. 2.8

Grow~ ~manufacturing 6.7 5.3 6.9 6.9 8.0 7.3 7.0 7.7 6.6 7.7 9.3 7.9 5.0 6.1 -- 5.3 3.0 3.2 0.02 3.0 3.2 7.1 5.2 n.a. 5.2

Growth of exports s 4.9 11.3 13.1 9.7 10.2 11.1 9.6 12.0 18.3 15.8 10.3 14.1

28.1 -4 ,0 21.8 19.2 13.7 12,2 19.2 13.7 3.4 n.a. n.a. 8.4

"Year of liberalization. - b Period includes year of liberalization. - c Average for 31 liberalizing economies. All growth rates are for real growth. - d Average for 16 economies that sustained their trade reforms. - "Taking 1985 as year of liberalization. - f Taking 1988 as year of liberalization. - ~ For Mexico exports arc non-petroleum exports.

Source: For Mexico: SPP Sistema de Cuentas Nacionales and Baneo de Mexico Indi- cadores Economicas; for other countries: Papageorgiu et al. [1990].


sustained their trade reform. The focus is on the initial four-year period after liberalization.

If 1985 is taken as the year of liberalization, in Mexico in the four years commencing in 1985 there was barely any growth in GDP or manufacturing. Only for exports was there any substantial growth and this was below the rate for the year prior to liberalization and not high by the standards of other economies.

However, if one takes the view that a significant rise in imports is required for liberalization, then 1988 becomes the key year. With this starting point, fewer observations are available to assess performance after-liberalization, but GDP and manufacturing growth is more re- spectable, although still not particularly strong comparatively.

Nonetheless all aspects of performance cannot be attributed to a change in one area of policy and it would be misleading to equate all macro performance with the results of liberalization. 1985-87 was a period of recession, and it is not yet clear whether liberalization wors- ened or improved the macro situation. 5 Further, there are well-known difficulties in using a before and after comparison to measure the impact of policy change.

To assess the effect of liberalization within manufacturing, Weiss [1991] carries out cross-sectional regression analysis across 48 two- digit branches. The objective is to establish whether changes in various performance indicators can be explained by a model that includes variables that reflect the technology and market structure of a branch, as well as changes in its degree of liberalization. The hypothesis tested is whether variations in performance indicators are associated significantly with variations in any of the measures of liberalization, so that the more liberalized a branch (and by implication the greater the short-run shock effect) the better the performance.

Six alternative measures of liberalization are used for individual branches. Given the different definitions of liberalization discussed above, it is not surprising that there is little association between movements in these alternative measures at the branch level. Table 4 gives

s There have been two recent econometric studies on the impact of liberalization on the trade balance and therefore on the balance of payments constraint. Tapia and Cer- vantes [1988] conclude from their model that liberalization fairly quickly improves rather than worsens the current account, a result questioned by Ruiz [1990]. The position of the current account is that it moved from a surplus of 0.7% of GDP in 1985 to a deficit of-1.3% in 1986, and again to surplus of 2.8% in 1987. Since then, however, there have been continuous deficits. Banco de Mexico, lnforme Anual. Mexico D.F., various issues.


Table 4 - Simple Correlation Mat r i x : Liberalization Indicators 1 9 8 5 - 8 7 a

NRP ERP MS ILC ORP AT

NRP ERP MS ILC ORP AT

1.000 0.837* 1.000

-0.242*** -0.046 1.000 0.183 0.093 -0.166 1.000 0.225 -0.154 -0.205 0.028 0.015 --0.126 -0.119 0.067

1.000 0.447 1.000

a All terms refer to individual branches; see Table 1 for definition of terms. - Signifi- cant at * 1%o level; ** 5% level; *** 10% level.

a simple correlation matrix. The main association is between changes in the two price measures of nominal (NRP) and effective protection per branch (ERP), which are significantly and positively correlated at the 1% level. There is also some association between changes in average tariff per branch (AT) and in official reference price coverage (ORP), but no significant correlation between changes in these and either of the protection estimates, or with import share. Changes in import share at the branch level (MS) are only weakly associated (at the 10% level) with changes in NRP, although the negative sign is expected.

Of the performance indicators analysed, the results for single factor labour productivity and manufactured exports are discussed here, since for these two indicators the results are less ambiguous and imply that across manufacturing there was a tendency for liberalization to have a positive effect on performance, in the short period from 1985 to 1988. However, liberalization was only one of the factors influenc- ing performance and its effect, whilst positive, was nonetheless relatively weak.

For labour productivity, in manufacturing in the aggregate, growth after 1985 was no more than modest. For 1985-89, it averages 1.9% annually compared with around 1% in 1981-85, and around 3% in 1975-80. 6 In Mexico, as elsewhere, the Verdoorn relation between output growth and productivity growth is found to be significant [Kaldor, 1967]. However, after 1985 the impact of output growth

6 Labour productivity is value-added at constant prices per worker. Data come from the national accounts. SPP, Sistema de Cuentas Nacionales. Mexico D.F., various issues.


on productivity growth is stronger than in the first half of the decade.7 Not only is there a strongly significant association between output growth and productivity growth, but also between nominal protection and productivity growth. Both signs are expected: the positive sign on output growth implies dynamic economies of scale, whilst the negative sign on nominal protection implies that liberalization, as measured by a fall in protection, is associated with better than average productivity growth.

It can be argued that, as the NRP estimates used here are based on direct comparisons between domestic and world prices, causation runs from faster productivity growth to lower nominal protection through the effect of productivity on domestic prices. The likelihood of this direction of causation is reduced by the fact that separate regression tests reveal a consistently positive relation between changes in labour productivity and price-cost margins per branch. The implication is that in manufacturing, because of its relatively uncompetitive structure, higher productivity results in higher price markups rather than in lower prices. 8

A set of other variables, including alternative measures of liberalization are also tried but generally are found to be non-significant.

For example, if one uses the Kaidor test for the Verdoorn relation [Kaldor, 1975] and regresses both productivity and employment growth on output growth for the periods before and after 1985, it is clear that for a given percentage increase in output the increase in productivity growth relative to employment growth is substantially higher after 1985. 1980-2 to 1984-6 n = 49

N = - 0 . 0 2 + 0.74OG ~.2=0.75 (-2.23)** (11.95)*

L P = 0.02 + 0.25OG ~2=0.23 (2.43)** (3.87)*

1984-6 to 1987 n = 49 N = 0.01 + 0.39OG ~2 =0.28

(1.20) (4.45)* L P = - 0 . 0 1 + 0.60OG i~2 = 0.49

(-0.91) (6.82)*

where * significant at 1% level; ** significant at 5% level; N is growth of employment; L P is growth of labour productivity; OG is growth of output. After 1985, a 1% growth in output is associated with a 0.6% growth in labour productivity and a 0.4% growth in employment, compared with a 0.25% growth in productivity and approximately a 0.75% growth in employment in the earlier period. s Price-cost margin is measured as the ratio of value-added minus labour costs over gross output, at current prices. The positive relationship is statistically significant at the 1% level up to 1985, but is not significant after 1985 [Weiss, 1991, p. 47].

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The best-fit version of the productivity equation (1984-6 to 1988) is given below and explains just over half of the variation in labour productivity growth:

LP = - 0 . 0 0 4 - 0.16 NRP + 0.13 KL + 0.04 INT + 0.06 OG ( -0 .14) (-2.23)** (0.23) (0.93) (6.07)*

p2 = 0.52, n = 48,

where t-ratios are in brackets; * significant at 1% level; ** significant at 5% level. The variables are denoted as follows: LP is growth of labour productivity at constant prices; NRP is growth of nominal protection; KL is capital-labour ratio; 1NT is index of technology; OG is growth of output at constant prices. All values are per branch and are in natural logarithms. The index of technology (INT) is calculated as the ratio of average labour productivity in a branch divided by best-practice productivity in the branch.

Similar results are found for manufactured exports. In real terms, total manufactured exports grew rapidly during the 1980s averaging 18.1% annually in 1985-89, and 15.7% in 1981-85. 9 However, in a cross-sectional analysis the link with liberalization requires that there is a significant association between variation in export growth at the branch level and in liberalization, so that the more liberalized branches experienced faster export growth. Regression analysis across 48 manufacturing branches is also carried out for a brief period after 1985 [Weiss, 1992].

Variation in export growth is found to be significantly and nega- tively associated with both growth of internal demand (production plus imports minus exports) and growth of nominal protection. The signs are expected since a fall in internal demand frees goods for export and a fall in nominal protection implies greater exposure to foreign competition and greater price competitiveness. Other technology and structure variables, as well as alternative measures of liberalization are tried, but in general are found to be non-significant. How- ever, the explanatory power of the export equations are not high and the constant term is always significant. For 1984-6 to 1987 the best-fit equation is

EX = 0.73 - 1.78 NRP + 0.14(ILC+ O R P ) - 4 .89KL- 1.32IND (2.05)** (-2.27)** (0.41) (-0.78) (-2.10) **

p2 = 0.15, n = 48;

9 Data come from the national accounts cited above. At the branch level, published manufactured export data only go up to 1987 [Casar, 1989].


where t-ratios are in brackets; * significant at 1% level; ** significant at 5% level. Furthermore, E X is growth of exports at constant prices; ILC + O RP is growth of the composite index of changes in coverage of import licences and official reference prices; IND is growth of internal demand at constant prices; N R P and KL are as above.

Whilst both sets of results indicate a statistically significant relation between changes in a measure of liberalization (nominal protection) and a measure of performance, with the expected signs, they do not indicate the quantitative impact of liberalization on performance over the periods covered. This can be found by reestimating the equations for LP and E X including only the significant explanatory variables. The new coefficients of these explanatory variables can then be combined with their rates of change over the period concerned to identify their respective contributions to change in the dependent variables.

For L P the revised equation (1984-6 to 1988) is

L P = -0 .02 - O.18NRP + 0.60 OG l~, 2 = 0.51 (-1.51) (-2.61)** (7.O4)*

Actual average growth in OG over this period is 0.0398 and in N R P -0.0878. Applying these values in the equation implies that the impact of OG on LP is approximately 50% greater than that of N R P [0.60 x 0.0398 + 0.18 x 0.0878 = 1.51]. Therefore, over this period, whilst on average 49% of the variation in labour productivity growth is unexplained, of the remainder that is explained approximately 60% is due to output growth and 40% to liberalization. These respective contributions are equivalent to an increase over the period of 2.4 percentage points due to output growth and 1.6 percentage points due to liberalization.

Similarly for exports, if N R P and IND only are regressed on E X the revised equation is

E X = 0.47 - 1 .56NRP - 1.34IND p2 = 0.18 (4.23) (-2.17)** (2.28)**

Average growth of IND and N R P over the period is -0.0377 and -0.0878, respectively. Applying these values in the revised equation implies that over the period the impact of N R P on E X is approximately 2.7 times greater than that o f l N D [1.56 x 0.0878 + 1.34 x 0.0377 =2.71]. However, over this period as much as 82% of the variation in export growth is unexplained; of the remainder approximately 73 % is due to changes in protection and 27% to changes in internal de-

724 Weltwir t schaf t l iches Archiv

mand. These relative contributions correspond to an increase of approximately 14.7 percentage points due to liberalization and 5.1 percentage points due to internal market demand.

VI. Conclusions

This article has considered various aspects of trade liberalization in Mexico. The conclusion is that short-run effects on performance have been positive, if relatively minor. Previously protected manufacturing activities have not collapsed in the face of import competition, but neither have there been major gains due to greater technical or allocative efficiency that can be linked directly with changes in protection. The variation in growth rates that can be attributed to protection is no more than 0.5 percentage points annually for labour productivity, although it is somewhat higher at 7.0 percentage points annually for exports.

Evidence on longer-run dynamic effects is not yet forthcoming. For productivity, given the strong relation between output growth and productivity growth much is likely to depend upon whether liberalization worsens or improves the balance of payments position. A balance of payments constraint has typically emerged in Mexico during periods of high growth, leading to internal demand contraction and a downturn in output growth; with a loss of potential dynamic economies of scale and productivity growth [Brailovsky et al., 1990]. If liberalization has a positive net effect on the foreign exchange position it will help to relieve this constraint, whereas the reverse will hold if it worsens the foreign exchange position. 1~ It remains to be seen what the long-run effects of liberalization will be.

References

Banco de Mexico, Banco de Mexico Indicadores Economicos. Mexico D.F., various issues.

Bhagwafi, Jagdish, "Export-Promoting Trade Strategy: Issues and Evidence". The World Bank Research Observer, Vol. 3, 1988, pp. 27-57.

Brailovsky, Vladimiro, Roland Clarke, Natan Warman, La Politica Economica del Des- perdicio. Universidad Nacional Autonoma de Mexico. Mexico D.E 1990.

Casar, Jaime, Transformacion en el Patron de Especializacion Comercio Exterior del Sector Manufacturero Mexicano 1978-87. Instituto Latinamericano de Estudos Transnacionales -Nacional Financiera. Mexico D.E 1989.

1o The author is grateful to Vladimir Brailovsky for this point.


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726 W e l t w i r t s c h a f t l i c h e s A r c h i v

Z u s a m m e n fa s s u n g: Handelsliberalisierung in Mexiko in den achtziger Jah- ren: Konzepte, Mal3nahmen und kurzfristige Wirkungen. - In dem Artikel werden drei alternative Definitionen der Handelsliberalisierung unterschieden: Beseitigung der Aul3enhandelskontrollen, Erh6hung des Importanteils auf dem Binnenmarkt und Neu- tralit/it der Anreize bei Verk/iufen f'dr den in- und ausl.~ndischen Markt. Die Analyse der mexikanischen Erfahrung an Hand dieser Definitionen ergibt, dab die Liberalisie- rung nur im Sinne der ersten Definition signifikant war. Die Wirkung der Libcralisie- rung wird durch eine Regressionsanalyse iiber die Industriezweige getestet. Offensicht- lich wurden Arbeitsproduktivitfit und Exportwachstum durch die Liberalisierung giin- stig beeinfluBt. Allerdings ist die Wirkung der Liberalisierung ziemlich bescheiden, ist sie doeh eine von mehreren Determinanten.

R 6 s u m 6: La iib6ralisation du commerce ext6rieur au M6xique dans les ann6es 1980: les concepts, ies mesures et les effets ~i court terme. - L'auteur donne trois d6finitions alternatives de la lib6ralisation du commerce ext6rieur: L'enl6vement des contr61es du commerce ext6rieur, raugmentation relative des importations sur le mar- ch6 int6rieur et la neutralit6 des incitations en ce qui conceme les ventes ~i l'ext6rieur et ~i l'int6rieur. L'analyse de l'exp6rience du M6xique montre que la lib6ralisation 6tait significative seulement au sens de la premi&e d6finition. L'analyse de r6gression par des branches industrielles d6montre que la lib6ralisation a stimul6 la productivit6 de travail et les exportations. Toutefois rimpact de la lib6ralisation, n'6tant qu'un des facteurs d'influence, est relativement mod6r6.

R e s u m e n: Liberalizaci6n del comcrcio r M6xico en los afios 80: conceptos, medidas y efectos de corto plazo. - En r trabajo se identifican tres definiciones altcmativas de liberalizaci6n del comcrcio: abolici6n de los controles al comcrcio, aumento de la fracci6n de productos importados en el mercado interno y neutralidad de los incentivos para exportar y para vender ell el mercado intemo. Se discutc la experiencia de M6xico con respecto a estas definiciones, resultando ser significantr s61o la primera de elias. El impacto de la libcralizaci6n se estudia con ayuda de una regresi6n con observaciones a nivel de industrias. Segfn los criterios de la productividad laboral y del crecimiento de las r se detecta una asociaci6n entre la liberalizaci6n y una performance mejor. Empero, el impacto de la liberalizaci6n es relativamentr modesto, siendo este s61o uno m~s de los factores que act6an.

trade liberalization in mexico in the 1980s: concepts, measures and short-run effects

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