Economic Performance under NAFTA: A Firm-Level Analysis of the Trade-Productivity Linkages∗

Did the North American Free Trade Agreement (NAFTA) made Mexican plants more productive? If so, through which channels? We address these ques-tions by deploying an innovative microeconometric approach that disentangles the various channels through which integration with the global markets (via international trade) can affect firm-level productivity. Our results show that NAFTA stimulated the productivity of Mexican plants via: (1) an increase in import competition and (2) a positive effect on access to imported intermediate inputs. However, the impact of trade reforms was not identical for all integrated firms with fully integrated firms benefiting more than other integrated firms. Contrary to previous results, once self-selection problems are solved, we find a rather weak relationship between exports and productivity growth. ∗The authors are grateful to Gerardo Leyva and Abigail Durán for granting access to INEGI data at the offices of INEGI in Aguascalientes under the commitment of complying with the confidentiality requirements set by the laws of Mexico. We would like to thank all the INEGI’s employees who helped during the work at Aguascalientes, and express our special gratitude to Alejandro Cano and Gabriel Romero whose patience and camaraderie helped and supported us during this work. We thank Ala