Premature Specialization? The Export Re-specialization Pattern of Mexico

Since the early 1990s, Mexico has been on a path of increasing export re-specialization, the sequential shift in a country’s exporting pattern from diversification to specialization in more technology and capital-intensive products. This is an unexpected phenomenon, as export re-specialization is typically experienced by advanced economies.  

In a new working paper, Praveena Bandara examines why this pattern of export re-specialization has persisted in Mexico by systematically analyzing two major exogenous trade shocks that occurred during the period of analysis: the ratification of the North American Free Trade Agreement (NAFTA) in 1994, and the accession of China to the World Trade Organization (WTO) in 2001. 

Bandara uses an event study methodology to analyze the impact of these two events on Mexico’s product-level export pattern, finding the re-specialization incidence coincides with the agreement’s implementation and further intensified after China’s accession. She concludes that NAFTA positively impacted low-domestic input-intensive Maquiladora products, a program between the United States and Mexico, with re-specialization permanently shifting production into these products. On the other hand, the impact of China’s accession is negative and more generalized, affecting export shares of all industries rather than specific ones.