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The J-curve and NAFTA: evidence from commodity trade between the US and Mexico

Mohsen Bahmani-Oskooee () and Scott Hegerty ()

Applied Economics, 2011, vol. 43, issue 13, 1579-1593

Abstract: The North American Free Trade Agreement (NAFTA) was predicted to have a substantial impact on the US-Mexico trade, especially on specific importing and exporting industries. In this article, we use annual industry-level export and import data from 1962 to 2004 to discern both the short- and long-run effects of real exchange-rate depreciation on the Mexico-US trade balance, as well as the effects of NAFTA on this trade. We find that peso depreciation has a positive long-run effect on 24 of 102 Mexican industries and a negative short-run effect on 19 of 102 industries. Only a small fraction (7 of 102 industries) show any support for the J-curve hypothesis. NAFTA has had a significant effect on a significant number of the industries, however.

Date: 2011
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Handle: RePEc:taf:applec:v:43:y:2011:i:13:p:1579-1593