Nafta and productivity convergence between Mexico and the US

Abstract

This paper revisits the question of whether NAFTA contributed to the productivity convergence between Mexico and the US. It introduces improved procedures for generating total factor productivity (TFP) data and applies new and more appropriate econometric methods. With these refinements, the paper provides some counter-evidence to the previous literature's findings of technology convergence toward a smaller gap level and NAFTA's positive effect on it. Our main result suggests an increasing TFP gap level, while some robustness checks, although not documenting increasing gaps, weaken the claim of the previous literature. The paper also applies a difference-in-difference approach and finds no evidence of sizeable effects of NAFTA.