NAFTA and the Environment: What Can the Data Tell Us?

Critics of trade liberalization agreements such as the North American Free Trade Agreement (NAFTA) have expressed concerns that polluting industries will locate in developing countries to evade more stringent regulation, with adverse environmental consequences. A study of NAFTA's effects on U.S.-Mexico trade finds that despite differences in the stringency of U.S. and Mexican environmental policies, NAFTA did not cause Mexico to specialize in dirtier industries between 1989 and 1999. Regarding the location of manufacturing production during the NAFTA transition, although growth was fastest in the congested Mexican border region, growth declined in the congested central region and increased in the less congested interior region, with all regions shifting toward less polluting industries. Most of the observed measures of air quality in the border region, which can serve as an indicator of NAFTA's short-term scale effects, do not exhibit significant breaks in their trend of improvement.