The hidden dynamics of the USA-Mexico trade relationship : a partial export data decomposition approach

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Karamelikli, Huseyin and Ongan, Serdar and Gocer, Ismet (2024) The hidden dynamics of the USA-Mexico trade relationship : a partial export data decomposition approach. Spatial Economic Analysis, 19 (4). pp. 661-698. ISSN 1742-1772 (https://doi.org/10.1080/17421772.2024.2330406)

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Abstract

This study employs a unique methodology to uncover the hidden dynamics of the USA-Mexico trade relationship under the United States-Mexico-Canada Agreement (USMCA) agreement. The conventional bilateral trade balance (BTB) only considers total export data, which may need to be revised for testing the J-curve hypothesis since countries (such as the USA) also re-export to their partners (e.g., Mexico). To address this, the study decomposes total export data into re-export data and domestic export data and proposes two new forms of J-curve hypothesis testing: the partial-domestic-J-curve hypothesis BTB and the partial-re-export-J-curve hypothesis BTB. The study's empirical findings suggest that the partial methodology should be used for asymmetric J-curve hypothesis testing in the USA-Mexico trade. The findings also indicate that Mexican consumers are more sensitive to changes in the value of the peso for US domestic products than re-exported products, and they purchased more US domestic products than re-exported products during the COVID-19 pandemic.

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