Trade liberalization and the dimensions of efficiency change in Mexican manufacturing industries

Did Mexico's recent trade liberalization generate productivity gains? We find that average costs fell in most industries, with tradeable goods producers registering the largest reductions. Among importables, these cost reductions trace partly to improvements in relative productivity. Among exportables, they are due to favorable changes in relative prices, probably because imported intermediate goods became cheaper. Gains due to scale economy exploitation were minor and were not correlated with increases in foreign competition. Hence the results cast some doubt on simulation studies of trade liberalization that stress scale effects as a major source of efficiency gain.