THE EFFECT OF THE COMMERCIAL LIBERALIZATION ON THE MARGINS OF PRICES TO MARGINAL COSTS OF THE MANUFACTURING SECTOR

This paper analyzes the effect of the North American Free Trade Agreement (NAFTA) on Mexican manufacturing price cost margins (PCMs) for the period 1994-2003. Taking into account the sensitivity of each industry to the speed of the tariff reductions under NAFTA, the results show that PCMs immediately decreased once the second round of trade liberalization in Mexico had commenced in 1994. However, in subsequent years, no clear pattern emerges for these Pcms. Additionally, the paper accounts for the sensitivity of each industry to the initial level of its tariff and presents evidence showing that while NAFTA had an effect on the Pcms of the group of industries that liberalized in 10 years, no robust effect was found for the group of industries that liberalized in five years.