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

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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.
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Document Type: Research Article

Affiliations: 1: The Center for Research on International Economics, The University of Wisconsin-Milwaukee, Milwaukee, WI 53201, USA 2: The Department of Economics, The University of Wisconsin-Milwaukee, Milwaukee, WI 53201, USA

Publication date: 2011-05-01

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