The origins and sustainability of Mexico's free trade policy

Abstract

Standard explanations for trade liberalization do not fully account for Mexico's turn toward free trade during the 1980s. To a large extent, the initiative came from within the country. Even many Mexican entrepreneurs whose sectors seem likely to lose from increased competition now support trade liberalization. Four conditions lowered the “political cost-benefit ratio” for policymakers and entrepreneurs. First, Mexico's leaders dispersed implementation into several financial ministries, thereby better insulating this policy from lobbying by the likely “losers.” Second, potential losers were less well-informed than were likely “winners.” Third, under these conditions, the liberal ideological biases of Mexican elite policymakers and investors flourished, prompting them to accept a higher political cost than would have been tolerated otherwise. Finally, many Mexicans came to perceive trade liberalization as a necessary tool in the fight against inflation. Each of these hypotheses, however, also flags a possible threat to the policy's future political survival.