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by Isidro Soloaga El Colegio de México FIFTH ANNUAL ELSNIT BARCELONA, OCTOBER 26-27, 2007

Comments to Ingo Borchert´s “Preferential Trade, Sunk Costs, and the Path-Dependent Expansion of Exports”. by Isidro Soloaga El Colegio de México FIFTH ANNUAL ELSNIT BARCELONA, OCTOBER 26-27, 2007. Key results.

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by Isidro Soloaga El Colegio de México FIFTH ANNUAL ELSNIT BARCELONA, OCTOBER 26-27, 2007

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  1. Comments to Ingo Borchert´s“Preferential Trade, Sunk Costs, and the Path-Dependent Expansion of Exports”. by Isidro Soloaga El Colegio de México FIFTH ANNUAL ELSNIT BARCELONA, OCTOBER 26-27, 2007

  2. Key results • ”Long-diff.” surrounding NAFTA´s tariff cuts  excess growth rates to alternative destinations relative to world exports • Feenstra-type indexes show the expansion to be more important on the extensive margin • Conditional Logit Panel exploits time dimension and show the “bridgehead” effect

  3. Comments • a key assumption is that the granting of a preference margin is in fact decisive in recouping the fixed costs of overseas market entry, and that, • Nafta`s inception in 1994 led to substantial variation in variable trade costs within a short period of time, thus providing • an excellent case for studying the dynamic effects of a one-shot improvement in market access conditions

  4. Based in Baldwin’s (1988) “beachhead model”: A static shock of the ER can change the number of exporters and prevailing prices by permanently changing the market structure …”there is a direct analogy if one replaces temporary exchange rate movements with one-time tariff cuts…” ...but this is Mexico in the 90’s !

  5. An early reformer…

  6. …with increasing export-related activities….

  7. …and increasing exports that followed the US cycle…

  8. …and ΔXs also to the world…

  9. …and had a huge devaluation in 1995…

  10. …that changed relative prices vis a vis other countries in the region…

  11. What were the NAFTA margins granted to Mexico?

  12. NAFTA margins granted to Mexico

  13. NAFTA margins granted to Mexico

  14. Thus… • It would be good to see, along with the introduction of +/-ΔRER, robustness of results when the “long period”, for instance is 1990 (as a pre-NAFTA year) … • FTAs as platforms for exports were also researched by Nicita, Olarreaga and Soloaga (Cuad. De Economìa,2004) for the case of Mercosur.

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