The impact of foreign trade on the Mexican economy: Terms of trade and therise of industry 1880-1923

This article uses both new and published data on Mexico's foreign trade to measure terms of trade and to investigate the relationship between trade an d the early growth of domestic industry. This analysis yields five conclusi ons: (1) Mexican terms of trade declined, largely due to the dramatic fall in the price of silver; (2) the growing diversity of Mexican exports signif icantly cushioned the short-term impact of silver depreciation; (I) declini ng terms of trade did not characterise the entire era, but instead were con centrated in two periods: 1891-97 and 1912-21; (4) although net barter term s of trade declined, Mexico's capacity to import-measured by the income ter ms of trade-improved markedly, and (5) this proved absolutely crucial in fi nancing the concurrent process of incipient import-substituting industriali sation. In other words, the Porfiriato witnessed a development process in w hich trade growth and the spread of domestic manufacturing were highly comp lementary. Without the former, industrialisation would have been severely h andicapped.