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The impact of NAFTA on prices and competition: Evidence from Mexican manufacturing plants

Year: 2025

Type: article

Abstract: This paper assesses the impact of the North American Free Trade Agreement on Mexican manufacturing plants’ output prices and markups. We distinguish between Mexican goods that are exported and those sold domestically, and decompose their prices separately into markups and marginal costs. We then analyze how these components were affected by the reductions in Mexican output tariffs, intermediate input tariffs, and U.S. tariffs on Mexican exports. We find that domestically sold products saw a decline in prices as Mexican plants faced more competition and gained access to cheaper inputs. Prices of exported goods fell only slightly as plants increased their markups in response to a favorable competitive environment due to declines in U.S. tariffs.

Source: Journal of International Economics

DOI: 10.1016/j.jinteco.2025.104085

Authors: Felipe Brugués, Ayumu Ken Kikkawa, Yuan Mei, Pablo Robles

Institutions: Instituto Tecnológico Autónomo de México, University of British Columbia, Singapore Management University

Language: English

Topic: Global trade and economics

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: hybrid

Estimated APC paid: $4,300