The impact of trade openness on the economic growth of Mexico

Abstract

International trade was proven to be of great importance to countries in boosting their economic growth. It is essential to the involvement of developed countries in the world economy. Mexico is a developing country who joined the World Trade Organization on January 1st 1995 and signed until today 13 free trade agreements with 50 countries. This thesis studies the impact of trade openness on the economic growth of Mexico. The variables used are trade openness and economic growth. Using Augmented Dickey Fuller and Philips Peron tests, we found that the variables are non-stationary at the levels, but they become stationary at the first difference. Then, we applied Johansen’s cointegration test, where the variables were found to be cointegrated. A VECM model was used to study the relationship between the variables. The results show a slightly positive impact of trade openness on economic growth in Mexico. Therefore, Mexico should work on making internal reforms along with improving its exports.