An Estimation of Mexico's Import Demand for U.S. Products and its Implications for the North American Free Trade Area

This paper presents an estimation of Mexico's import demand for U.S. products. The estimated equation makes imports a function of Mexico's income and of the real currency value index. This last variable develops a singular measure for both differentials in inflation and exchange rates between the two countries. The empirical results are statistically significant and have the expected signs. Imports are found to be highly elastic with respect to income and inelastic with respect to price. These results imply that after the passage of a NAFTA, U.S. exports would grow not because of lower tariffs in Mexico -as it is popularly believed- but rather due to the increase in Mexico's income. Using three plausible scenarios for Mexico's ten-year growth, increased exports to Mexico could result in U.S. job gains in the 1.3 to 3.3 million range.

Back to my homepage