Patterns and Determinants of Intra Industry Trade for the Mexican Non-Maquiladora Manufacturing Industry

Abstract

This study proposes that a quantification of bilateral IIT executed without differentiation of the maquiladora component overestimates the IIT index for Mexico with its North American Free Trade Agreement (NAFTA) partners. The adjusted index performed in this paper shows that Mexican trade benefits from NAFTA are overvalued. After the non-maquiladora IIT index is differentiated according to its horizontal or vertical nature, this study finds that the Mexican non-maquiladora IIT is mainly of a vertical nature. In addition, an econometric estimation of the determinants encompasses several variables which differentiate between horizontal and vertical IIT. This work finds that differences in market size, Foreign Direct Investment (FDI), product differentiation and trade restrictions were significant determinants of this trade.