Trade Flows Between the United States and Mexico: NAFTA and the Border Region

Abstract

Since the North American Free Trade Agreement (NAFTA) came into force in 1994, U.S.-Mexico trade has soared. The regional structure of trade flows within Mexico however has been hardly documented. This paper offers an analysis of state-level U.S.-Mexico trade flows. We find that the regional structure of bi-national trade under NAFTA has remained quite stable. Border States, in particular Texas and the Northeastern Mexico states, have consistently played a large role in overall U.S.-Mexico trade; nonetheless some non-borders states have also weighed heavily in that relationship, especially Michigan and Central Mexico states. The regional features of trade we identify point to varied and multi-layered border and trans-border dynamics that go beyond a simple border effect. Furthermore, we find that economic integration in the Texas-Northeastern Mexico region has intensified significantly under NAFTA in terms of business cycle synchronization. Moreover the region has come to display a considerable level of economic interdependence, as evidenced by the relatively large share of Northeastern Mexico’s economic output linked to its trade with Texas. These bi-national, border region economic linkages present opportunities as well as challenges for both national economic policies and the management of the shared border.

Keywords

• regional trade
• regional economic integration
• border
• Mexico
• United States
• NAFTA