Effects of the EU-Mexico Free Trade Agreement

Veerle Slotmaekers and Lúcio Vinhas de Souza

No 331345, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: The Free Trade Agreement between Mexico and the 15 member countries of the European Union officially entered into force on July 1, 2000. In this empirical study we first use a gravity model for import and export flows to quantify the trade effects of the EU-Mexico FTA. Besides the fixed effects approach we apply the instrumental variables estimator developed by Hausman and Taylor (1981). This method - unlike random effects - does not require independence of unobserved and observed characteristics, and allows us to study variables that are fixed over time. Our results indicate that the EU-Mexico FTA had a positive trade creation effect for imports. Moreover there is no evidence for trade diversion; the FTA generated a positive effect on imports with non-members. Also, other triangular FTAs - a country with which both the US and the EU have signed a FTA - tend to have a negative impact on both imports and exports of the EU and Mexico. We also estimate the effects of the EU-Mexico FTA using a complementary methodology, namely a standard CGE (Computable General Equilibrium) Model, reaching somewhat similar conclusions, albeit here signs of trade diversion are observed for some trade partners, while global welfare does increase.

Keywords: International Relations/Trade; Research Methods/Statistical Methods (search for similar items in EconPapers)
Pages: 37
Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:ags:pugtwp:331345

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