Structural change, the real exchange rate and the balance of payments in Mexico, 1960–2012

Carlos A. Ibarra and Robert Blecker

Cambridge Journal of Economics, 2016, vol. 40, issue 2, 507-539

Abstract: This paper estimates a structural model of the balance of payments, with disaggregated exports (manufactures and other) and imports (final and intermediate), and a reduced-form model of the trade balance for the Mexican economy. The analysis identifies structural changes in the composition of Mexico’s trade and the parameters that affect it across five subperiods marked by statistical breakpoints. The results indicate that a tightening of the balance-of-payments constraint may account for the post-liberalisation slowdown in Mexico’s growth only during certain subperiods and that the impact of real exchange rate changes on the trade balance has diminished, most likely as a result of the increasing integration of export industries into global supply chains. The results also suggest an asymmetry, whereby a country cannot sustain growth above the rate consistent with balance-of-payments equilibrium, as expected, but it can grow persistently below that rate when other constraints are more binding.

Date: 2016
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Working Paper: Structural Change, the Real Exchange Rate, and the Balance of Payments in Mexico, 1960-2012 (2014)
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