Abstract
The available empirical evidence on the relationship between international trade and economic growth in Mexico is not conclusive. This article first identifies the contributions and shortcomings of previous empirical work. Then several new econometric approaches are pursued using data for 1960–1991. Modern time-series methods and improved data are used to replicate previous Granger causality tests and single-equation regressions. Then, a simultaneous equation time-series regression model is used to confirm hypothesis that trade and growth are directly related. A direct test of the relationship between trade and total factor productivity is also carried out using a simultaneous-equations model. A positive relationship is again confirmed. The Lucas critique reminds us, however, that we cannot use econometric results, based on data from the past, to justify Mexico's new “outward-oriented” economic policies. Nevertheless, the results appear supportive when we consider that the sample period includes two decades of import substitution policies; the econometric results are likely to understate the actual strength of the trade-growth relationship under Mexico's current open trade regime.
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