Determinants of Trade: The Case of Mexico

This article explains the extent of intra-industry trade (IIT) in Mexico's foreign trade, and tests empirically various country-specific hypotheses concerning the determinants of intra-industry trade between Mexico and its major trading partners. The results of the econometric analysis corroborate the predictions of the theoretical models. The results indicate that the extent of Mexican intra-industry trade is positively correlated with the average income levels, average country size, trade intensity, trade orientation, the existence of a common border, the existence of a common language, and the participation in regional integration schemes, while it is negatively correlated with income inequality, inequality in country size, distance, and trade imbalance.