US-Mexico fresh vegetable trade: the effects of trade liberalization and economic growth

Studies of US-Mexico vegetable trade have generally emphasized the importan ce of US tariffs in determining the competitive advantage of US producers. Even so, research has identified at least four factors related primarily to the different levels of economic development in the US and Mexico that als o have important effects on US-Mexico agricultural trade in general and fre sh vegetable trade in particular. These include the differential growth rat es of US and Mexican real wages, production technology (yields), and per ca pita income as well as cyclical movements in the real Mexican Peso/US Dolla r exchange rate. This study examines the relative contribution of NAFTA and the development-related factors to likely future changes in US fresh veget able imports from Mexico. The analysis employs an econometric simulation mo del of US and Mexican markets for five fresh vegetables (tomatoes, cucumber s, squash, bell peppers, and onions) accounting for 80% of US fresh vegetab le imports. The results suggest that the 1994-1995 Peso devaluation rather than NAFTA was primarily responsible for the sharp increase in US imports o f Mexican vegetables observed in the first years following the implementati on of NAFTA. Over time, however, the results suggest that differences in th e growth rates of US and Mexican production yields and, to a lesser extent, of US and Mexican real incomes and/or real wage rates could plausibly cont ribute more to the future growth of US tomato, squash, and onion imports fr om Mexico than the trade liberalizing effects of NAFTA. (C) 2001 Elsevier S cience B.V. All rights reserved.