The bilateral USA-Mexico trade balances under decomposed export data

Ongan, Serdar and Karamelikli, Huseyin and Doyran, Mine Aysen and Gocer, Ismet and Rarick, Charles A. and Mellon, John (2023) The bilateral USA-Mexico trade balances under decomposed export data. Journal of Industry, Competition and Trade, 23 (3-4). pp. 171-186. ISSN 1566-1679 (https://doi.org/10.1007/s10842-023-00401-6)

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Abstract

This study re-formulates and re-examines the traditional bilateral trade balance (TB) concept (ratio) in the USA-Mexico case using a different methodology. This re-examination is constructed on newly formulated decomposed-export-based TBs—namely, domestic-export-based TB and re-export-based TB. Since the undecomposed traditional total-export-based TB is expressed as a total export/import ratio, it may misrepresent the actual nature of bilateral trade of this country with Mexico because the USA also considerably re-exports to Mexico. The main empirical finding confirms the need for using decomposed-export-based TBs in trade models for the USA since the impacts of exchange rate and income on undecomposed and decomposed export-based TBs of the USA are entirely different. For example, while depreciation in the USD improves the re-export-based TB for only 13 commodities, the same change in the USD improves the domestic-export-based TB for 18. Some empirical inferences from findings are as follows: (i) Mexican consumers (MC) with a stronger Peso purchase US domestically produced commodities more than re-exported ones; (ii) MC with a weaker Peso stop purchasing US re-exported commodities more than the US domestically produced ones; (iii) MC are appreciated/depreciated-Peso-sensitive to US domestically produced commodities more than re-exported ones.

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