Trade liberalization and the balance of payments constraint with intermediate imports: The case of Mexico revisited

Abstract

Previous studies have found that a tightening of the balance of payments (BP) constraint can explain the slowdown in Mexico's growth after its trade liberalization in the late 1980s. This paper develops a disaggregated model of the BP constraint with two types of exports (manufactured and primary commodities) and two types of imports (intermediate and final goods). Econometric estimates (including tests for structural breaks) show that the BPequilibrium growth rate did not fall, but instead rose in the post-liberalization period, so this model cannot account for the country's growth slowdown. Instead, the analysis points to the need to consider the real exchange rate as well as internal obstacles and policies.

Industrial Policy: A Missing Link in Mexico's Quest for Export‐led Growth

“…A second, and to a certain extent complementary, hypothesis is that the expansion of exports—relying more and more on foreign‐produced intermediate inputs—provoked the surge of imports and, therefore, the sluggishness of investment explains Mexico's slow growth (see Blecker & Ibarra, ). Both interpretations coincide on the view that the tendency of the real exchange rate to appreciate has reduced the Mexican economy's growth potential because it undermines the international price competitiveness of domestic producers and also tends to orient investment to the production of nontradable goods, but they differ on the importance they give to the penetration of imports in the nonexporting sector and the subsequent breakup of the domestic interlinkages.…”

“…Behind Mexico's changing export and import trajectories lies the consolidation of a dual structure with a few of its large firms competing successfully in world markets but with scant use of domestic suppliers of inputs and raw materials, and with a vast number of hardly dynamic small, medium, and micro firms excluded from the benefits of surging export demand and oriented to a rather sluggish domestic market (See Domínguez & Brown, 2003;Moreno-Brid & Ros, 2009;Pacheco, 2005;Vidal, 2008). A second, and to a certain extent complementary, hypothesis is that the expansion of exports-relying more and more on foreign-produced intermediate inputs-provoked the surge of imports and, therefore, the sluggishness of investment explains Mexico's slow growth (see Blecker & Ibarra, 2013). Both interpretations coincide on the view that the tendency of the real exchange rate to appreciate has reduced the Mexican economy's growth potential because it undermines the international price competitiveness of domestic producers and also tends to orient investment to the production of nontradable goods, but they differ on the importance they give to the penetration of imports in the nonexporting sector and the subsequent breakup of the domestic interlinkages.…”

International Trade and Development

“…Furthermore, Mexico's manufactured exports are largely produced by (or under contract with) foreign MNCs that generally keep their most innovative and high value-added operations elsewhere. These elements of Mexico's export strategy have limited the overall growth gains that the country has received from its exports (Blecker and Ibarra, 2013).…”

Thirlwall’s Law and uneven development under Global Value Chains: a multi-country input–output approach

“…This somewhat abstract theoretical insight has promulgated an emerging empirical literature on Thirlwall's Law in which import and export elasticities have been estimated using econometric functions at the sectoral level (e.g. : Romero and McCombie 2016;Blecker and Ibarra 2013;Romero et al 2011;Govea and Lima 2010). Valuable insights have been provided into the structure of sectoral elasticities, of particular note being evidence to suggest that some countries should specialise in the production of exports from key high-tech industrial sectors.…”

“…One problem that has emerged in this literature, however, is the role of Global Value Chains (GVCs) in the specification of sectoral income elasticities. Blecker and Ibarra (2013), for example, show in a study of Mexico that income elasticities are biased if the role of intermediate inputs is not taken into account. Since in a global production network intermediate inputs can be traded multiple times between countries, gross trade flows can fail to locate the original source of value added and overestimate its scale.…”