TY  - JOUR
AU  - Tornell, Aaron
AU  - Esquivel, Gerardo
TI  - The Political Economy of Mexico's Entry to NAFTA
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5322
PY  - 1995
Y2  - October 1995
DO  - 10.3386/w5322
UR  - http://www.nber.org/papers/w5322
L1  - http://www.nber.org/papers/w5322.pdf
N1  - Author contact info:
Aaron Tornell
Department of Economics
UCLA
405 Hilgard Ave, Bunche Hall #8283
Los Angeles, CA  90095-1477
Tel: 310/794-1686
Fax: 310/825-9528
E-Mail: tornell@econ.ucla.edu
M1  - published as Aaron Tornell, Gerardo Esquivel Hernández. "The Political Economy of Mexico's Entry into NAFTA," in Takatoshi Ito and Anne O. Krueger, editors, "Regionalism versus Multilateral Trade Arrangements" University of Chicago Press (1997)

AB  - In this paper, we derive three lessons from Mexico's experience. First, deep reforms like trade liberalization are not likely to happen by government decree.  Instead, they usually come about when the unanimous blocking of reform by powerful elites breaks down.  In the case of Mexico, this happened during a fiscal crisis, when some groups tried to displace other groups in order to capture a greater share of fiscal revenue.  Second, in the presence of entrenched elites, the sustainability of reform depends on the existence of new groups that benefit from the new status quo and have enough power to defend it. Thus, the speed of successful reform is determined by the speed with which new groups are consolidated.  Initially, Mexico limited radical liberalization to the manufacturing sector.  The government has only recently begun to undertake serious liberalization in the services and agriculture sectors.  The third lesson we take from Mexico is that the importance of formal agreements like NAFTA lies not so much in the ability of these agreements to reduce average import tariffs among their parties and improve their terms of trade vis   vis the rest of the world, as claimed by the optimal tariff literature, but in that they serve as commitment devices to force reforms to continue.
ER  -