Interest Groups and Trade Reform in Mexico

Luis Sanchez-Mier
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Luis Sanchez-Mier: Department of Economics and Finance, Universidad de Guanajuato

No EC200502, Department of Economics and Finance Working Papers from Universidad de Guanajuato, Department of Economics and Finance

Abstract: Mexico experienced widespread economic reform in the last two decades. From being a protectionist economy with a policy of import substitution, it has turned into an export-oriented open economy. Why was protectionism a stable policy, and how was it overturned by a reform that went against entrenched interests? I apply a game theoretic model of political influence and economic reform to answer these questions using data to calculate the payoffs for the relevant interest groups. In the underlying cooperative game, the core is empty and a protectionist coalition of import-substituting firms and the government was "stable" until the eighties. Adjusting the model's parameters to changes in the government's financing options in the late eighties and early nineties leads to a different and unique outcome. In the predicted outcome a free trade policy is adopted through cooperation between all players.

Keywords: Trade Reform; Mexico; Coalition Formation; Aspirations; Cooperative Games; Interest Groups (search for similar items in EconPapers)
JEL-codes: C71 D72 O12 O24 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2005-04, Revised 2005-04
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Published in El Trimestre Economico (2005)

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Persistent link: https://EconPapers.repec.org/RePEc:gua:wpaper:ec200502

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