Mexico: Selected Issues

International Monetary Fund

doi:10.5089/9781462326419.002.A002

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Mexico: Selected Issues

Author: International Monetary Fund

Publication Date:: 08 Aug 2011

eISBN:: 9781462326419

Language:: English

Keywords:: ISCR; CR; Mexico; inflation AR; export; export concentration; Mexico's export; regained advantage; export basket; export similarity; Export performance; Competition; Productivity; Comparative advantage

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Mexico’s growth process in trend and cyclical factors, with implications for policy decisions, is discussed. Mexico’s trade integration has been important for growth. But the high export growth experienced has been followed by a more muted performance. Reforms to improve productivity are important to sustain export dynamism. Fiscal credibility, underpinned by prudent fiscal management and a strong fiscal framework, permitted a countercyclical fiscal response during the global crisis. However, Mexico faces significant long-term fiscal challenges, and addressing effectively such fiscal challenge would require early action.

Abstract

II. Understanding Mexico’s Recent Export Performance¹

Mexico’s trade integration has been important for growth. But the high export growth experienced after joining the GATT, and particularly NAFTA, has been followed by a more muted performance since 2000. Direct competition from China may have, in part, played a role, but the estimated magnitude appears moderate with Mexico’s flexible exchange rate helping to mitigate the impact. An indirect channel may have also been at play, with a shift of production from North America to Asia linked to productivity growth differentials during this period. More recently, there have been signs of renewed export growth which could be associated with a significant rebound in U.S. manufacturing and Mexico’s regained advantage in certain manufacturing segments. Over the medium term, reforms to improve productivity would be important to sustain export dynamism in Mexico.

1. Since trade liberalization three decades ago, Mexico has been transformed from a predominantly oil exporter to an open economy with a diversified export basket. Export concentration, as measured by the Herfindahl index using 4-digit SITC data, shows a clear pattern of continued decline in concentration since early 1980’s. This is the period that Mexico transformed from a predominantly oil exporter into a major exporter of manufacturing goods. During the same period, Mexico also became more open to trade. The enactment of NAFTA in 1994 significantly boosted Mexico’s openness, particularly to the U.S. market. Total exports and imports as a share of GDP, a standard measure of trade openness, grew from less than 30 percent of GDP in 1980 to about 60 percent in 2009. By 2009, Mexico was an open economy with an export basket as diversified as many peer countries and leading export power houses.

2. However, Mexico’s exports are very concentrated in the U.S. market, which absorbs 80 percent of Mexico’s exports. Other countries typically have a much smaller exposure to their largest trading partners, at a range of 20—40 percent for Korea, China, Germany and Brazil. While this is a natural result of “gravity” and good access to the world largest economy is beneficial, the high concentration to the U.S. market also makes Mexico’s exports sensitive to demand conditions in and competition for the U.S. market.

3. The export basket of Mexico has been evolving over time. Among the top 10 products that have the highest revealed comparative advantage (RCA) scores, there are only 4 overlapping products between 1996 and 2009. Notably, petroleum dropped out the top 10 list during that period while motor vehicles became one of the top products that Mexico appears to have comparative advantage on.

Products with highest revealed comparative advantage scores ^1/

Source: UN COMTRADE and staff calculations.

^{^1/}Calculations are based on 3-digit SITC (rev.1) data from UN COMTRADE. The exact RCA scores and rankings will be different if different revisions of SITC codes are used.

Products with highest revealed comparative advantage scores ^1/

	1996			2009
Code	Product Description	RCA	Code	Product Description	RCA
723	EQUIPMENT FOR DISTRIBUTING ELECTRIC	7.6	724	TELECOMMUNICATIONS APPARATUS	4.9
961	COIN	6.3	54	VEGETABLES, ROOTS & TUBERS	3.9
54	VEGETABLES, ROOTS & TUBERS	4.2	723	EQUIPMENT FOR DISTRIBUTING ELECT	RICITY3.7
71	COFFEE	3.3	62	SUGAR CONFECTIONERY	3.3
331	PETROLEUM	3.0	685	LEAD	3.2
681	SILVER	2.8	725	DOMESTIC ELECTRICAL EQUIPMENT	2.8
267	WASTE MATERIALS FROM TEXTILE FABRICS	2.7	686	ZINC	2.6
724	TELECOMMUNICATIONS APPARATUS	2.6	112	ALCOHOLIC BEVERAGES	2.3
697	HOUSEHOLD EQUIPMENT OF BASE METAL	2.1	732	ROAD MOTOR VEHICLES	2.2
722	TRACTORS	2.1	681	SILVER	2.1

Source: UN COMTRADE and staff calculations.

^{^1/}Calculations are based on 3-digit SITC (rev.1) data from UN COMTRADE. The exact RCA scores and rankings will be different if different revisions of SITC codes are used.

Products with highest revealed comparative advantage scores ^1/

	1996			2009
Code	Product Description	RCA	Code	Product Description	RCA
723	EQUIPMENT FOR DISTRIBUTING ELECTRIC	7.6	724	TELECOMMUNICATIONS APPARATUS	4.9
961	COIN	6.3	54	VEGETABLES, ROOTS & TUBERS	3.9
54	VEGETABLES, ROOTS & TUBERS	4.2	723	EQUIPMENT FOR DISTRIBUTING ELECT	RICITY3.7
71	COFFEE	3.3	62	SUGAR CONFECTIONERY	3.3
331	PETROLEUM	3.0	685	LEAD	3.2
681	SILVER	2.8	725	DOMESTIC ELECTRICAL EQUIPMENT	2.8
267	WASTE MATERIALS FROM TEXTILE FABRICS	2.7	686	ZINC	2.6
724	TELECOMMUNICATIONS APPARATUS	2.6	112	ALCOHOLIC BEVERAGES	2.3
697	HOUSEHOLD EQUIPMENT OF BASE METAL	2.1	732	ROAD MOTOR VEHICLES	2.2
722	TRACTORS	2.1	681	SILVER	2.1

Source: UN COMTRADE and staff calculations.

^{^1/}Calculations are based on 3-digit SITC (rev.1) data from UN COMTRADE. The exact RCA scores and rankings will be different if different revisions of SITC codes are used.

4. Mexico has made significant progress in increasing its presence in the U.S. market. Mexico’s market share in the U.S. market grew steadily between 1980 and 2000, from less than 4 percent of U.S. non-fuel imports in 1980 to about 12 percent in 2000. Along the way, there were two noticeable accelerations in gaining market share following Mexico’s entry into GATT in 1986 and NAFTA in 1994. However, Mexico’s market share stopped growing and even declined somewhat after 2001. Recent data show that Mexico’s market share recovered after the crisis and stabilized at a historically high level.

5. Relatively moderate import growth in the U.S. in the 2000s has in part contributed to Mexico’s relatively low export growth in this period. Average goods import growth in the U.S. during 2000—07 is about 4½ percent per annum, slower than both the average growth rate in the U.S. during the 1990s and other comparator groups during the same period, most notably developing and emerging economies. Given Mexico’s large exposures to the U.S. market, like Canada, these two countries saw their exports growth decelerate considerably during the 2000s. This is in contrast to countries that have greater trade with more dynamic developing and emerging economies.

6. Mexico’s economic growth has been significantly correlated with its export performance. After the Tequila crisis and joining NAFTA, Mexico’s economic growth tended to move in tandem with its export growth, particularly goods export. The simple correlation between the two growth rates is high at 0.86 during 1996—2010. While there were many domestic factors at play,² the lackluster export performance since 2001 could help explain Mexico’s overall growth in the 2000s.

7. A structural shift in manufacturing production from North America to Asia can help explain the relatively low export growth. A significant fraction of Mexico’s exports are by the Maquila industry, which is an integral part of the North America supply chain. The result of moving production to Asia by U.S. companies, as suggested by an increasing share of U.S. FDI in Asia and a substantial moderation of manufacturing growth in the US, meant that the exports associated with the North America supply chain from Mexico were also shipped to Asia. As a result, the export performance of the Maquila industry was particularly weak after 2000.

8. The evolution of the Asia supply chain is dominated by the ascendance of China.³ The U.S. market share of the Asia supply chain has been growing steadily over time, from less than 20 percent in 1990 to more than 30 percent in 2009. The increase was entirely driven by exports from China, while market share by ex-China Asia actually declined. This reflects the fact that China is the end point of the Asia supply chain, importing raw materials, capital goods and intermediary goods from Asia and exporting final products to the U.S. and other markets.

9. Mexico’s relatively lower productivity growth may have influenced outsourcing decision to Asia, particularly China. Average total factor productivity growth in Mexico was markedly lower during 2001—07, before the global crisis, compared to the period of 1996—2000. The lack of productivity gains in the 2000s became more striking when compared with China. During the same period, China experienced an acceleration of productivity growth as well as an export boom, following significant structural reforms it undertook during the late 1990s and the early 2000s, including restructuring state-owned enterprises and reforming the banking sector.⁴

10. Remaining export industries in Mexico have faced increased direct competition from China. In 2001, China joined the WTO and gained greater access to the U.S. market. China’s exports to the U.S. soon took off while the gains of market share by Mexico stopped. In terms of similarity, both China and Mexico export large quantity of manufacturing goods and the similarity between exports from the countries is high and more so than many other countries that are also important players in the U.S. market.

11. A constant market share (CMS) analysis indicates that Mexico’s exports have lost competitiveness, particularly to China, but the overall magnitude of the direct China effect appears moderate. After gaining competitiveness for 15 straight years in the US, Mexico started to see its competitiveness eroding at around 2001. The loss of competitiveness is more pronounced when China is included than when China is excluded, suggesting a direct China role. The reverse is, however, not true. China has been gaining competitiveness regardless of whether Mexico is considered or not. The direct impact from China on Mexico’s exports, as measured by the difference between Mexico’s competitiveness gain with and without China, increased substantially after 2001 and peaked at around 3 percent of Mexico’s exports in 2005, a moderate overall effect.⁵ This calculation however does not necessarily capture all potential channels of impact from China, including terms of trade effects and shift of production to Asia.⁶ On the other hand, the identified China effect may not be limited to China, but reflect the impact of the entire Asia supply chain.

12. However, there is considerable heterogeneity across products, with some sectors experiencing stronger effects. This can be seen from the wide range of China effects on products that are grouped by their technology intensities (see appendix for the definition of technology intensity). While the China effect on Mexico’s high-tech exports was nearly 8 percent of its high-tech exports to the U.S. in 2005, the China effect on resource-based low technology exports was on average negligible. Even for products of the same technology intensity, some were affected more than others. For example, while Mexico’s auto exports to the U.S. so far experienced little competition from China, the direct competition from China on machinery exports has been very fierce.

13. More generally, countries with greater export similarity to China have shown a larger effect from China’s growing presence in global trade. A cross section correlation between export similarity with China and the China effect in 2005, when the China effects peaked for most countries, depict a clear pattern that more similarity with China is associated with more negative impact from China. In fact, some countries, e.g., Korea, responded by moving to industries that there is less competition from China. The similarity of exports between Korea and China has been declining in recent years. Moreover, China’s exports are closer to what Korea was exporting 10 years ago than what Korea is exporting today. While similar response may have also happened in Mexico,⁷ it appears to be less strong compared to Korea’s, at least initially.

14. Bilateral exchange rate flexibility may have helped mitigate the impact. The bilateral exchange rate between the peso and RMB has moved considerably over the years, as a result of Mexico’s flexible exchange rate. Inflation and particularly wage growth differentials also lead to considerable movements in the bilateral real exchange rate.⁸ Between 2005 and 2009, RMB appreciated about 33 percent in nominal terms and 29(38) percent in CPI-based (ULC-based) real terms against the peso. Some regression analyses suggest that the China effect on Mexico’s export would decline by ½ percentage points for every 10 percent real appreciation of RMB against the peso. Moreover, low-tech and medium-tech products maybe more sensitive to bilateral exchange rate movements than either high-tech products or resource-based low-tech products.

Exchange Rate and the China Effect (2002-2009) ^1/

Source: UN COMTRADE, Staff estimate and calculations.

^{^1/}Robust standard error reported in prentices. ***, **, *, represent 1 percent, 5 percent and 10 percent siginificance level, respectively.

Exchange Rate and the China Effect (2002-2009) ^1/

	All Products	Resource- based low tech	Low-tech	Medium-tech	High-tech
CPI-Based REER	0.050 ***	-0.023	0.048**	0.060**	0.032
	(0.017)	(0.052)	(0.024)	(0.027)	(0.061)
Constant	-0.184*	0.087	-0.209	-4.715	-0.312
	(0.097)	(0.198)	(0.153)	(3.856)	(0.326)
Fixed Effect	Y	Y	Y	Y	Y
OBS	3543	164	1338	1762	266
R-Sq	0.08	0.13	0.16	0.05	0.05

Source: UN COMTRADE, Staff estimate and calculations.

^{^1/}Robust standard error reported in prentices. ***, **, *, represent 1 percent, 5 percent and 10 percent siginificance level, respectively.

Exchange Rate and the China Effect (2002-2009) ^1/

	All Products	Resource- based low tech	Low-tech	Medium-tech	High-tech
CPI-Based REER	0.050 ***	-0.023	0.048**	0.060**	0.032
	(0.017)	(0.052)	(0.024)	(0.027)	(0.061)
Constant	-0.184*	0.087	-0.209	-4.715	-0.312
	(0.097)	(0.198)	(0.153)	(3.856)	(0.326)
Fixed Effect	Y	Y	Y	Y	Y
OBS	3543	164	1338	1762	266
R-Sq	0.08	0.13	0.16	0.05	0.05

Source: UN COMTRADE, Staff estimate and calculations.

^{^1/}Robust standard error reported in prentices. ***, **, *, represent 1 percent, 5 percent and 10 percent siginificance level, respectively.

15. More recently, the recovery in U.S. manufacturing, the depreciation of the peso and increase in relative costs in China may have contributed to the rebound in Mexico’s exports. The recovery in manufacturing activity in the U.S. has been strong, particularly driven by robust exports, which have also benefited Mexico’s exports. Meanwhile, RMB is currently appreciating at an annualized rate of about 6 percent against USD. Wage growth is also brisk in China, at about 20 percent annually, although unit labor cost is growing at a slower pace due to productivity gains. This has allowed Mexico to regain some competitiveness edge against China, especially in sectors that are sensitive to transportation cost. There are in fact some nascent signs that exports of bulky household goods, such as refrigerators, are getting stronger.

16. However, efforts to boost productivity would be important to sustain export growth over the medium term. Several sectors including telecom, consumer staples, and cement remain dominated by a few private market participants and efficiency is low in the energy sector that is dominated by state monopolies. The quality of education is poor and long-standing contractual rigidities in the labor market remain. Violence from organized crime has hindered investment. Therefore, measures to foster competition and labor flexibility, improve education and reinforce domestic security are all crucial to unleash the potential of Mexico untapped productivity growth, which will ultimately be required to sustain continued strong export growth. In this regard, the recent anti-trust reform is a welcome right step to increase competition.

Appendix 1: Data

All trade data are taken from UNCOMTRADE database, which reports bilateral trade flows at detailed product level. The observations are annual and in U.S. dollar terms. 4-digit SITC product data are used for all calculations that require product-level details.

Export Concentration

Export concentration is measured by the Herfindahl index, which is defined as

H = {(Σ_{i = 1}^{N} s_{i}^{2})}^{1 / 2}

where s_i is the share of good i in a country’s overall export basket. H is an index between 0 and 1 and a higher H corresponds to more concentration.

Revealed Comparative Advantage

Reveal comparative advantage (RCA), which was proposed by Balassa (1965), is defined as

R C A = \underset{S_{i}^{w o r l d}}{S_{i}}

where s_i is the share of good i in a country’s overall export basket and $S_{i}^{w o r l d}$ is the share of good i in the world trade. A RCA score greater than 1 suggests that a country has revealed comparative advantage in exporting that particular good.

Export Similarity

Export similarity between country m and n, which was originally proposed by Finger and Kreinin(1979), is defined as

{E S I}_{m, n} = Σ_{i = 1}^{N} \min (S_{m, i}, S_{n, i})

where S_m,i(S_m,i) is the share of good i in country m’s (n’s) export basket. ESI is an index between 0 and 1, where 1 corresponds to identical export structures and 0 corresponds to completely different export structures.

Technology Intensity

This paper uses the Hatzichronoglou (1997) methodology to group products into different technology intensities. The technological intensity reflects to some degree “technology-producer” aspect, which is measured by the ratio of R&D expenditure to value added. It also reflects “technology-user” aspect, which is measured by purchases of intermediate and capital goods.

There are two main steps involved. Step 1: mapping each of the OECD ISIC code into a technology intensity category. Step 2: mapping SITC code in UN COMTRADE to the OECD ISIC code.

The paper classifies manufacturing industries in four categories of technological intensity: resource-based low tech, low-tech, medium-tech and high tech.

One caveat is that products which belong to a high-technology industry do not necessarily have only high-technology content. Likewise, some products in industries of lower technological intensity may incorporate a high degree of technological sophistication.

Deriving Mexico’s Competitiveness and the China Effect

Constant market shares analysis

The main analytical tool in deriving Mexico’s competitiveness is the constant market shares (CMS) analysis, which was first applied to studying international trade by Tyszynski (1951). The CMS analysis is similar to a growth accounting exercise, which decomposes the growth of a country’s exports into components that correspond to holding its market shares constant at certain disaggregated product level and a residual term, which will be treated as “competitiveness.”

More specifically, let i denote a commodity exported by a country j to a given destination, which, in the context of this paper, is the US. The change in the value of export of commodity i between period t and t-1 can be written as

\begin{matrix} (1) & V_{j, t}^{i} - V_{j, t - 1}^{i} - g_{i, t} \times V_{j, t - 1}^{i} + C_{j, t}^{i} \end{matrix}

Where $V_{j, t}^{i}$ is the value of export of commodity i by country j in period t, g_i,t is the growth rate of import of commodity i by the destination country and $C_{j, t}^{i}$ is a residual. If country j maintains its market share for commodity j in the destination country between t-1 and t, then its exports of commodity j to the destination country should also grow at the rate g_i,t and $C_{j, t}^{i}$ will be equal to 0. If $C_{j, t}^{i}$ is greater than 0, it indicates that country j is gaining market share for commodity i in the destination and vice versa. $C_{j, t}^{i}$ will be interpreted as “competiveness”, under the assumption that a country’s export market share for a particular product would remain constant without competitiveness gains or losses.

We can normalize the decomposition by dividing both sides of the equation by $V_{j, t - 1}^{i}$ which yields,

\begin{matrix} (2) & {g_{j, t}^{i} = g}_{i, t} + C_{j, t}^{i} \end{matrix}

In essence, export growth of product i by country j can be decomposed into two parts: the overall import growth of product i g_i,t and competitiveness gains/losses $C_{j, t}^{i}$ .

If we sum over all products that country j exports to the destination country, it becomes

\begin{matrix} (3) & V_{j, t} - V_{j, t - 1} = Σ i (g_{i, t} \times V_{j, t - 1}^{i}) + Σ i (C_{j, t}^{i}) \end{matrix}

where V_{j, t} is the total exports from country j to the destination in period t, namely, $V_{j, t} = Σ i V_{j, t}^{i}$ .

The above equation can be similarly normalized by V_{j, t-1}, which yields

\begin{matrix} (4) & g_{j, t} = \end{matrix} Σ i (g_{i, t} \times S_{j, t - 1}^{i}) + C_{j, t}

where $S_{j, t - 1}^{i} = \frac{V_{j, t - 1}^{i}}{V_{j, t - 1}}$ is the share of product i in country j’s export basket in t-1 and $C_{j, t} = \frac{Σ i (C_{j, t}^{i}}{V_{j, t - 1}}$ .

This equation simply states that the growth of country j’s exports to the destination is equal to the weighted average of growth rates of imports by the destination plus an unexplained residual C_{j, t}, which again would be interpreted as competitiveness gains or losses in this paper.

Equations (2) and (4) are the basis for calculating a country’s competitiveness at individual product level and at the aggregate level.

The China effect

To single out the China effect, it is important to know the counterfactual-what would have happened if there were no China. Without controlling for the counterfactual, the China effect could be either overstated or understated. While there are potentially many different ways of constructing the counterfactual, this paper takes a very straightforward and simple approach-doing the CMS analysis by excluding imports from China.

By excluding imports from China, equations (2) and (4) become

\begin{matrix} (5) & g_{j, t}^{i} = g_{i, t}^{e x c n} \end{matrix} + C_{j, t}^{i, e x c n}

and

\begin{matrix} (6) & {g_{j, t} = Σ i (g}_{i, t}^{e x c n} \times S_{j, t - 1}^{i}) \end{matrix} + C_{j, t}^{i, e x c n}

$C_{j, t}^{i, e x c n} a n d C_{j, t}^{e x c n}$ effectively measure country y’s competitiveness in the residual market that excludes imports from China, at the product level and aggregate level, respectively. The difference between $C_{j, t}^{e x c n}$ and c_j,t (or $C_{j, t}^{i, e x c n}$ and $C_{j, t}^{i}$ is treated as the China effect.

Similar approach is also used to derive the Mexico’s effect.

References

Benelli, Roberto and Kai Guo, 2011, “Impact of China’s Competition: Brazil and Mexico:, Selected Issues Paper in China Spillover Report, IMF.
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Chiquiar, Daniel, Edna Fragoso and Manuel Ramos-Francia, 2007, “Comparative Advantage and the Performance of Mexican Manufacturing Exports during 1996-2005,” Banco de Mexico Working Papers, No. 2007-12.
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Chiquiar, Daniel, Edna Fragoso and Manuel Ramos-Francia, 2009, “Competitiveness and Growth of the Mexican Economy,” Banco de Mexico Working Papers, No. 2009-11.
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Balassa, Bela, 1965, “Trade Liberalisation and ‘Revealed’ Comparative Advantage,” The Manchester School of Economics and Social Science, 33, 99 -123.
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Balassa, Bela, , 1979, “The Changing Pattern of Comparative Advantage in Manufactured Goods,” The Review of Economics and Statistics, 61(2), 259–266.
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Garnaut, Ross, Ligang Song, Stoyan Tenev, and Yang Yao, 2005, “China’s Ownership Transformation: Process, Outcomes, Prospects,” (Washington: The World Bank).
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Hanson, Gordon, 2010, “Why Isn’t Mexico Rich?” Journal of Economic Literature, December 48(4), 987–1004.
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Hanson, Gordon, and Raymond Robertson, 2010, “China and the Manufacturing Exports of Other Developing Countries,” In China’s Growing Role in World Trade, eds. Robert Feenstra and Shang-Jin Wei, 137–59. Chicago and London: University of Chicago Press.
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Prepared by Kai Guo (SPR).

See Hanson (2010) for more discussions on potential factors behind Mexico’s growth performance.

The Asia supply chain is comprised of China, Hong Kong SAR, Korea, Singapore, Taiwan Province of China, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam.

One important caveat is that TFP may be endogenouswhereby the derived low TFP growth in Mexico could be a result of competition from China.

Hanson and Robertson (2010) also tried to derive the impact from China’s competition by estimating a gravity equation. Despite the different methodology, the magnitude of the China effect on Mexico’s manufacturing exports is estimated to be between 0.2 to 3.4 percent during 1995-2005, similar to this paper’s finding.

For example, the income effect due to terms of trade changes, which could be a result of competition from China, is not captured by the analysis. Such effect could be quite important.

Chiquiar, Fragoso and Ramos-Francia (2007) documented such response in Mexico through 2005.

It should be noted that the quality of wage data in China is known to be of low quality. Therefore, this paper refrains from using wage data and ULC-based real exchange rate to conduct regression analysis.

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Mexico: Selected Issues

Author: International Monetary Fund

Volume/Issue:: Volume 2011: Issue 249

Publisher:: International Monetary Fund

ISBN:: 9781462326419

ISSN:: 1934-7685

Pages:: 39

DOI:: https://doi.org/10.5089/9781462326419.002

Keywords
II. Understanding Mexico’s Recent Export Performance1
- Appendix 1: Data
References

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Mexico: Export Concentration and Openness

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Export concentration and openness

(2009)

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Share of exports to the largest trading partner

(In percent, 2009)

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Mexico: Export market share in the U.S.

(share of total imports)

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Goods import growth

(In percent)

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Goods export growth

(In percent)

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Mexico: Growth of goods export and GDP

(in percent)

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Share of US Outward Investment

(in percent)

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Manufacturing Index and Maquila Export

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US market share of Asia supply chain

(in percent)

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The shifting exports of ex-China asia

(in percent)

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Total factor productivity growth

(in percent)

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U.S. Market Share: Mexico and China

(in percent)

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Export Similarity with China

(in the U.S. market, 2009)

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Competitiveness Gain

(In percent of exports to US)

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The China effect on Mexico’s exports

(in percent of exports to US)

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Mexico: machinery market share in US

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Mexico: automobile market share in US

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Export Similarity and the China Effect

(2005)

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Export Similarity with China in the US

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Nominal Exchange Rate

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Annual Real Appreciation of RMB

(vis-a-vis peso, in percent)

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Exports: US and Mexico

(in millions of US dollar)

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Mexico: refrigerator export

(in percent of total exports)

Exchange Rate and the China Effect (2002-2009) ^1/

	All Products	Resource- based low tech	Low-tech	Medium-tech	High-tech
CPI-Based REER	0.050 ***	-0.023	0.048**	0.060**	0.032
	(0.017)	(0.052)	(0.024)	(0.027)	(0.061)
Constant	-0.184*	0.087	-0.209	-4.715	-0.312
	(0.097)	(0.198)	(0.153)	(3.856)	(0.326)
Fixed Effect	Y	Y	Y	Y	Y
OBS	3543	164	1338	1762	266
R-Sq	0.08	0.13	0.16	0.05	0.05

Source: UN COMTRADE, Staff estimate and calculations.

^{^1/}Robust standard error reported in prentices. ***, **, *, represent 1 percent, 5 percent and 10 percent siginificance level, respectively.

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Abstract

II. Understanding Mexico’s Recent Export Performance1

Appendix 1: Data

Export Concentration

Revealed Comparative Advantage

Export Similarity

Technology Intensity

Deriving Mexico’s Competitiveness and the China Effect

Constant market shares analysis

The China effect

References

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II. Understanding Mexico’s Recent Export Performance¹