Exports and New Varieties: An Analysis of U.S.-Mexico Agricultural Trade 

No. ID-16

OFFICE OF INDUSTRIES WORKING PAPER

U.S. INTERNATIONAL TRADE COMMISSION

Cathy L. Jabara 

Brendan Lynch

U.S. International Trade Commission

September 2006

Cathy L. Jabara is a Senior Economist and Brendan Lynch is an intern in the Office of

Industries of the U.S. International Trade Commission. The authors appreciate helpful

reviews by Michael Ferrantino and Tim McCarty of the Commission. Office of Industries

Working Papers are the result of the ongoing professional research of USITC Staff and are

solely meant to represent the opinions and professional research of individual authors.

These papers are not meant to represent in any way the views of the U.S. International

Trade Commission or any of its individual Commissioners. Working papers are circulated

to promote the active exchange of ideas between USITC Staff and recognized experts

outside the USITC, and to promote professional development of Office staff by encouraging

outside professional critique of staff research. 

Address correspondence to:

Office of Industries 

U.S. International Trade Commission

Washington, DC 20436 USA
Exports and New Varieties: An Analysis of U.S.-Mexico Agricultural Trade 

Cathy L. Jabara 

Brendan Lynch

U.S. International Trade Commission

Comments Welcome

ABSTRACT: In recent years, economists have focused on examining the link between trade

liberalization and trade in new product varieties in order to more fully quantify the gains from

trade. Much of the literature in this area has focused on measuring the growth in trade in new

tariff lines and then linking this trade to changes in tariffs or other factors under free trade

agreements (Feenstra and Kee (2005), Debaere and Mostashari (2005, and Hillberry and

McDaniel (2002)). This paper provides some additional insights on the role of new product

varieties by examining the expansion of U.S. trade in agricultural products with Mexico under

the NAFTA. Using methodology developed by Feenstra and Kee (2005) we examine the

increase in product variety of U.S. imports from Mexico from 1993-2005 using trade variety

indexes that measure the increase in new tariff lines. To complement this analysis, we also

examine Mexico’s exports of new varieties to the United States since 1993 on a value basis.

We conclude that while an analysis of changes in trade under new tariff lines is important to

understand the importance of new varieties, the effects on international trade flows maybe

different, depending on the actual volumes of trade in new tariff lines. Additionally, we found

that, in addition to tariff preferences, factors such as direct investment, adoption of

technological change, and changing consumer tastes in the United States have contributed to

Mexico’s opportunities for new product exports under the NAFTA. 
 1

 Hillberry and McDaniel (2002) applied a simple decomposition of U.S. trade growth with NAFTA

partners during 1993-2001. Their results showed that a large part of the increase in U.S. imports from

Mexico during this time period was due to trade in a larger number of tariff lines. 

1

Exports and New Varieties : An Analysis U.S.-Mexico Agricultural Trade 

Introduction

With the expansion of trade agreements in recent years, an important area of economic research is

how to more fully analyze and explain the gains from trade. Economics researchers have developed both

partial equilibrium and computable general equilibrium models that can explain the effects of changes in

tariffs and other trade barriers on existing trade flows using accepted economic parameters. However,

more recently, researchers have noted that the value of trade between two countries can grow in two ways

following trade liberalization: countries can export more of the goods they had already been trading,

which is growth on the intensive margin, or they can begin exporting goods they had not been previously

trading, which is growth on the extensive margin (Kehoe and Ruhl, 2003; Hillberry and McDaniel, 2002).

Due to a lack of data and estimates of the parameters necessary to quantify the development of new

product varieties following a decrease in trade barriers, economic models have generally not incorporated

an extensive margin (Francois and Martin, 2006). The omission of the effects of trade liberalization on

the extensive margin likely leads to an understatement of the effects of trade agreements on trade and on

the benefits to liberalizing countries.

The objective of this paper is provide some data and information on the role of the extensive

margin in the expansion of trade in agricultural products under the NAFTA. In particular, this paper

focuses on U.S. imports of agricultural products from Mexico and the opportunities for growth in new

product varieties that have occurred in Mexico since the NAFTA came into effect in early 1994. Since

1993, U.S. agricultural imports from Mexico have grown significantly. U.S. agricultural imports from

Mexico grew from 10.9 percent of the total of U.S. agricultural imports in 1993, the year before the

NAFTA was implemented, to 14.9 percent of total U.S. agricultural imports in 2005. The paper will shed

some light on the extent to which the NAFTA provided opportunities for export of new product varieties

from Mexico and the factors that contributed to these exports.1
2

This paper is organized as follows. First, the background and importance of research on export

varieties in international trade is discussed. Second, methodology to examine the changes in export

variety over time developed by Feenstra and Kee (2005) is introduced. In the third section, this

methodology is used to examine Mexico’s changing variety in its exports to the United States from 1989

to 2005. This period of time is significantly long to examine Mexico’s export variety both before the

NAFTA was implemented in January 1994 and after its implementation. Most studies, utilizing the

methodology of Feenstra and Kee and others, have estimated changes in export variety through the

increase in tariff lines or “new goods.” In the final sections of the paper, we examine Mexico’s exports of

new varieties to the United States since 1993 on a value and import share basis. We conclude that while

an analysis of changes in trade under new tariff lines is important to understand the importance of new

varieties, the effects on international trade flows maybe different, depending on the actual volumes of

trade in new tariff lines. Additionally, we found that, in addition to tariff preferences, factors such as

direct investment, adoption of technological change, and changing consumer tastes in the United States

have contributed to Mexico’s opportunities for new product exports under the NAFTA. 

Background and Importance of the Trade Variety Issue

The lack of economic analysis on the relationship between product variety and trade liberalization

has been of concern to economists for two basic reasons. First, to the extent trade liberalization creates the

opportunity for exports of new or higher quality products, the liberalizing countries will experience

increased productivity and economic growth. Often these gains are unmeasured. For example, Feenstra et.

al. (1999) analyzed the relationship between output variety and productivity using disaggregated exports

to the United States from South Korea and Taiwan. Their study found that relative export variety had a

positive and significant effect on total factor productivity in 9 of the 16 sectors analyzed. In a later study,

Feenstra and Kee (2004) analyzed the effects of export variety on GDP for 34 countries using data for

1982 to 1997. Their study showed that tariffs are statistically important in affecting productivity through

effects on export variety.
3

Second, economists have examined issues of trade liberalization and product variety from the

point of view of improving studies that model the effects of trade liberalization. Hummels and Kleenow

(2002) have noted that trade models, which generally use simple Armington elasticities of national

differentiation, predict that trade will occur entirely on the intensive margin. Without an extensive

margin, they note that these models miss two-thirds of how larger economies export more, and one-third

of how they import more. Moreover, they note that expanding exports of distinct national varieties on a

purely intensive margin can drive down the prices of those varieties on the world market, worsening a

country’s terms of trade. On the other hand, according to Francois and Martin, increases along the

extensive margin (new product varieties) shift out the export demand curve and provide additional gains

from trade.

In regard to quantifying the gains from globalization and trade, in addition to improving

modeling analysis, economists have been concerned that the lack of understanding of the importance of

new varieties has led to an under reporting of the gains from trade. In a recent article Broda and Weinstein

(2005) examined how the availability of new goods through international trade has affected consumer

welfare. They note that international trade has significantly broadened consumer choice. Broda and

Weinstein estimated the value of global variety growth in the 1972-2001 period at roughly $260 billion.

Debaere and Mostashari (2005) have noted that while several studies, including those cited

above, have examined the link between the extensive margin and trade liberalization, further analysis

would be useful to link tariff reductions to increased trade in new goods at the disaggregated level. Their

paper analyzed the changing extensive margin in bilateral exports to the United States between the

periods 1989-1991 and 1998-2000. Using disaggregated tariff line data, they found that some goods

became obsolete, new goods appeared, and some goods were reclassified. Examining the “permanent

goods,” or the goods whose HS classifications remained constant over the sample period, they found that

countries that benefitted from tariff preferences, such as Mexico, exported new goods during the time

period of analysis, but that countries which did not benefit from tariff preferences, such as China,

exported new goods as well. Using regression analysis, the authors found that tariffs and tariff preferences
 2

 Debaere and Mostashari argue that, in their paper, they are the first to investigate the link between the

extent of tariff reductions and the changing extensive margin using very disaggregated data. However, by

only examining trade in “permanent” goods, Debaere and Mostashari eliminated new tariff classifications

that could have evolved over the life of their sample to accommodate trade in new products or in products

that become more economically important. This omission may affect the results of their study.

4

do affect the extensive margin, but that the overall contribution of tariffs and tariff preferences is

relatively small. They cite other factors as being more important, such as technological change and the

macroeconomic environment in explaining the action at the extensive margin.2

New Products and Measurement of Export Variety

For the purpose of measuring changes in Mexico’s export variety under NAFTA, we utilize

methodology developed by Feenstra and Kee (2004, 2005). Feenstra and Kee describe the expansion of

product varieties as a “new goods” problem: a good that is newly available will have an observed price

and quantity, but no corresponding price or quantity the year before. Assuming the set of feasible

varieties in a country will lie along a strictly concave transformation curve, they show that for a given

transformation curve, and given prices, an increase in the number of output varieties will raise revenue.

They argue that costs are reduced or revenue is increased when the set of product varieties expands. They

develop an index of product variety constructed from a CES production function when the inputs enter

non-symmetrically (Funke and Ruhwedel 2001). The index is constructed by comparing two units of

observations, either two time periods or two countries. 

Following Feenstra and Kee (2005), Mexico’s export variety to the United States is measured by

comparing its product variety in exports to the United States to that of the world, using the following

formula: 

λ λ t

c

t t

c

it it

i I

it it

i I

it it

iI iI

it it

i I

I

p q

p q

p q

p q

t

c

t

t tc

t

*

*

*

*

*

* *

* *

* *

,

* * ≡ = =− ( ) ∈

∈

∈ ∉

∈

∑

∑

∑

∑ 1
 3

 In this paper, agricultural products are defined as tariff lines in HS chapters 1-24, less fish in chapter 3;

and headings 41.01 to 41.03, 43.01, 50.01 to 50.03, 51.01 to 51.03, and 52.01 to 52.03.

5

where is an index of the product variety of a country, in this case Mexico. denotes the λt

c*

λt t

c I *

( )

expenditure of the United States on the set of varieties imported from Mexico relative to the complete set

of varieties imported from the world in time period t, and is the complete set of goods imported by the It

c

United States from Mexico in period t. The set I is the complete set of varieties imported by the United t

*

States in year t, and p q is the total value of imports of good i by the United States. Thus, export it

*

it

*

product variety in Mexico is measured as an index relative to the world and is interpreted as the share of

total U.S. imports from products that are exported by Mexico. Feenstra and Kee note that this measure

depends on the set of exports of a given country c, I , but not on its value of exports, except insofar as t

c

they affect the value of worldwide exports. A higher value of the product variety index measured over

time indicates a larger range of products being exported by country c. 

Mexico’s Agricultural Product Variety

As noted in other studies, measurement of changes in product variety requires the availability of

highly disaggregated product data. Variety shifts over time may not be observable at the Harmonized

System (HS) 2- or 6-digit level if the new varieties fall within tariff headings or sub-headings in which

products are being exported at the start of the measurement period time t0. The more detailed the data, the

more it is possible to observe the variety shifts over time. For the indexes presented below, variety

indexes were constructed using the 10-digit HS tariff classification for U.S. imports. 

Product variety indexes were constructed for Mexico’s agricultural exports to the United States.

Five indexes were constructed: agricultural products as a whole; edible vegetables (HS chapter 7); edible

fruits and nuts (HS chapter 8); processed foods and beverages (HS chapters 16-22); and other agricultural

products in the remaining agricultural HS chapters.3

 The indexes were constructed over four years: 1989,
6

1993, 1999, and 2005. The indexes constructed for 1993 to 2005 reflect changes in Mexico’s product

variety in exports to the United States in the post-NAFTA world. However we do not formally test for a

statistical relationship between product variety and NAFTA tariff changes. Rather, the indexes reflect the

opportunities for Mexico’s changing product variety under the trade environment provided by NAFTA.

The export variety indexes for Mexico’s agricultural exports to the United States are shown in

figure 1, which plots the trend in the indexes for 1989 to 2005. As shown in figure 1, the product variety

of Mexico’s exports to the United States was fairly high prior to the NAFTA. In 1989, 66 percent of U.S.

agricultural imports consisted of the set of products exported by Mexico. The share of Mexico’s product

variety was highest for edible vegetables (86 percent) and lowest for processed products (62 percent).

Interestingly, in 1993, the year before the NAFTA was implemented, Mexico’s export variety in

agricultural exports to the United States had declined in agriculture as a whole (64 percent of U.S. import

agricultural import variety), the exceptions being marginal increases in the export variety of edible

vegetables and processed foods). This suggests that prior to the NAFTA, the United States was expanding

its imports of varieties exported by countries other than Mexico in certain sectors, or that other countries

were capturing growth in export opportunities for new product varieties. The NAFTA may have helped to

reverse that trend.
7

 Following the NAFTA, Mexico’s product variety in exports to the United States increased

sharply in a number of sectors, with the largest increases in fruits and nuts and processed products during

the first five years (1994-1999). Mexico’s product variety share in U.S. imports of edible vegetables rose

marginally, but this share was fairly high in 1999. By 2005, Mexico’s share in U.S. agricultural import

variety had risen from 63 percent in 1993 to 74 percent in 2005, or by 11 percentage points. From 1993

to 2005, the largest increases in Mexico’s export variety to the United States were in processed products

(increase from 64 to 79 percent), followed by fruits and nuts (increase from 73 to 86 percent), other

agricultural products (increase from 58 to 61 percent), and edible vegetables (increase from 89 to 92

percent).
8

U.S. Import Preferences for Mexico’s Agricultural Goods 

Feenstra and Kee (2005) examined the relationship between trade liberalization under the

NAFTA and Mexico’s export product variety using regression analysis for all U.S. product sectors,

including agriculture using pooled data for seven industries and twelve years. They found that a NAFTA

dummy variable was statistically significant in explaining the increase in Mexico’s export variety to the

United States following the NAFTA. In a second regression analysis, Feenstra and Kee removed the

NAFTA dummy and regressed the log values of Mexico’s and U.S. tariffs, plus an interaction term, on

Mexico’s export variety. They found the tariff terms to be statistically significant, and that changes in

Mexico’s export variety were almost fully explained by reductions in the bilateral tariff terms.

The tariff preferences for U.S. agricultural imports from Mexico under NAFTA are shown in

figure 2 for the five agricultural sectors. The preferences are calculated as the difference, in percentage

points, between the average U.S. tariff applied to goods entering the United States from countries other

than Mexico less the average U.S. tariff applied to Mexican goods. A positive value in figure 2 indicates

that the U.S. tariffs applied to goods originating from countries other than Mexico were higher than the

average tariffs applied to Mexican goods (Mexican goods have a tariff preference). A negative value

indicates that the tariffs applied to Mexican goods were higher (non-Mexican goods have a tariff

preference). U.S. tariffs were calculated from duties collected as a percent of the applicable customs

value. 
9

The data on tariff preferences indicate that, similar to the findings of Feenstra and Kee, U.S. tariff

preferences for Mexico likely provided some incentives for increasing variety in Mexico’s exports to the

United States following the NAFTA. During 1993 to 2005, average U.S. tariffs applied to Mexico’s

exports of processed products, the sector which experienced the largest increase in product variety, fell

below those applied to U.S. imports from other countries in the same chapters by 1999, as noted by the

positive coefficient on the tariff preference. On the other hand, the U.S. tariffs applied to Mexico’s

exports of “other agricultural products” were lower than those applied to U.S. imports from other

countries at the start of the NAFTA, and this “preference” appears to have stayed about the same during

the NAFTA. Aside from edible vegetables, this sector had a relatively small increase in export variety

following the NAFTA as measured by tariff lines. By 2005, U.S. tariffs applied to Mexico’s agricultural
10

exports were lower on average than the tariffs applied to U.S. imports from other countries for the sectors

in Figure 2 and for agriculture as a whole, as noted by the positive coefficients for all values in 2005. 

New Varieties and Impact on Trade Flows

The number of tariff lines under which the United States imported agricultural products from

Mexico rose from 425 to 826 during 1993 to 2005, illustrating both the increase in variety in both

Mexico’s exports and in U.S. agricultural imports. At the same time, U.S. agricultural imports from

Mexico increased by over 200 percent during 1993-2005, from $2.8 billion to $8.8 billion.

Important questions for both trade modeling and to further understanding of the trade impacts of

the NAFTA are (1) to what extent did Mexico’s exports of new varieties contribute to an expansion of

trade in 2005, and (2) what other factors, other than tariffs, may also have contributed to the increase of

new varieties in Mexico’s trade. These questions will be addressed in the following sections.

Mexico’s new varieties and trade flows

To estimate the new varieties in U.S. agricultural imports from Mexico, we first imposed the set

of agricultural goods ( , t= 1993) imported by the United States from Mexico in 1993 on the set of It

c

goods imported by the United States from Mexico in 2005 ( , t= 2005). According to Feenstra and Kee It

c

(2005) and Funke and Ruhwedel (2001), if the number of varieties has increased, then the common set of

goods in the two periods is represented by , t= I 1993, and the new goods are represented by goods in t

c

I , t= 2005 that are not in the set of goods t= 1993. Using this methodology, the value of U.S. t

c

agricultural imports from Mexico that were imported from Mexico in both 1993 and 2005 in the same

HS-10 tariff lines amounted to $5.1 billion in 2005. The difference, the goods in new tariff lines, 

accounted for $3.7 billion, or 42 percent of U.S. agricultural imports of $8.8 billion from Mexico in 2005,

or approximately 62 percent of the increase in U. S. agricultural imports from Mexico from 1993 to 2005. 

However, following the methodology of Debaere and Mostashari, the calculation of new goods is

likely overstated due to fact that, by 2005, many of the HS-10 classifications had disappeared, or goods
11

were reclassified in different tariff lines. Trade in goods that were reclassified should not be classified as

new goods, as the goods are simply entering under new tariff classifications. In many cases, new HS-10

tariff lines which had appeared as goods in “basket” categories were refined to account for the increasing

economic importance of goods in the “basket” categories. 

To correct for new classifications (and disappearing old classifications), we compared the tariff

lines in which imports entered the United States in 2005 with those in 1993. In instances where trade was

reclassified, or broken out into new HS lines, we subtracted this trade from the initial estimate of “new

goods” trade of $3.7 billion in 2005. The estimate of new goods trade is conservative. In instances where

it was not clear whether trade in the new classification was comprised of goods that were continuing to be

traded or new goods, we subtracted the estimate as trade in old goods. 

The calculated values of U.S. imports of new agricultural goods from Mexico in 2005 are shown

in table 1 on a total and sectoral basis. As compared to total U.S. agricultural imports from Mexico in

2005, the “new” goods accounted for approximately 16.8 percent of these U.S. agricultural imports. The

data suggest that an expansion in products that were already being exported by Mexico in 1993 accounted

for the largest increase in U.S. imports from Mexico during 1993-2005, although the trade in new

varieties is also significant. 

Table 1 U.S. Agricultural imports from Mexico: Estimate of new product trade value and share, 2005 

New product value Total U.S. imports Share

Million dollars Million dollars Percent

Processed foods ............................. 464.0 3,753.7 15.8

Vegetables ...................................... 463.0 2,567.7 18.0

Fruit and nuts .................................. 385.0 1,410.3 27.3

Other ............................................... 165.1 1,082.3 15.3

Total ......................................... 1,477.1 8,818.4 16.8

Source: Compiled from trade data of the Department of Commerce. 

The share of new products in the vegetables sector, which experienced the smallest increase in

trade variety as measured in tariff lines, amounted to about 18 percent of U.S. imports of such products

from Mexico. Much of the growth in new products in this sector is accounted for by new varieties of

tomatoes, such as grape varieties, as well as an expansion of greenhouse production of vegetables. A
 4

 Greenhouse vegetables were in production in Mexico prior to NAFTA. But since the tariff lines were

not established until 1999, it is assumed that such exports were not economically significant.

12

number of greenhouse tariff lines were added to the U.S. tariff schedule in 1999.4 U. S. imports of new

products from Mexico in the fruits and nuts sector amounted to 27 percent of sectoral imports in 2005. As

will be discussed in a later section, the easing of a U.S. ban on imports of avocados from Mexico played

an important role in Mexico’s increase in export variety in the post-NAFTA period in this sector.

The share of new goods in the processed foods sector, which experienced the largest increase in

trade variety as measured by new tariff lines, amounted to approximately 16 percent of U.S. imports in

this sector. Trade increases in this sector encompassed a large number of tariff lines, but import growth in

individual tariff lines was relatively small, as compared to the vegetables sector. Nonetheless, as

measured by the trade variety index, U.S. imports of processed foods from Mexico increased at a faster

rate than such imports from other countries. The share of new goods in U.S. imports from this sector is

also relatively small because the growth in trade in this sector is dominated by higher U.S. imports of beer

and other beverages, products that were not classified as new goods. Similarly, the share of the other

agricultural products sector in U.S. agricultural imports from Mexico amounted to about 15 percent of

U.S. sector imports from Mexico. However, the low growth in the trade variety index indicates that other

countries increased their exports of other agricultural products to the United States at a faster rate. 

New varieties and contribution to Mexico’s export growth 

To estimate the contribution of new product varieties to the growth in U.S. agricultural imports

from Mexico since the NAFTA, figure 3 shows U.S. agricultural imports from Mexico in 1993 and 2005,

with the 2005 imports decomposed into (1) new agricultural goods, and (2) agricultural goods that were

not estimated to be new since 1993 (“old varieties”). Comparing the trade in new goods to the growth in

U.S. agricultural imports from Mexico between 1993 and 2005, the trade in new goods of approximately

$1.5 billion amounted to about 25 percent of the growth in total U.S. agricultural imports of $6.0 billion.
13

For fruits and nuts, such growth in new product varieties amounted to 39 percent of the growth in total

U.S. imports of such products of approximately $1.0 billion in 2005. For edible vegetables and processed

products, U.S. imports of new products in 2005 amounted to 29 and 15 percent of the growth of such

imports between 1993 and 2005. The share of new products in the growth of U.S. imports of other

agricultural products from Mexico amounted to 74 percent of the total growth of these imports of $221.8

million. Although U.S. imports of these goods were relatively stagnant, exports of new products

accounted for the bulk of the increase. New product varieties in this sector largely occurred in meats and

edible offal in HS chapter 2 and dairy products in HS chapter 4.
 5

 For example, the U.S. Department of Commerce (2006) reports that high sugar costs during 1997-2002

were a major factor in U.S. companies' decisions to relocate to other countries.

14

Factors Affecting Trade in New Varieties 

While it has been shown that tariff preferences have been associated with increased product

variety in U.S. agricultural imports from Mexico, a number of other factors have also been present to

push the process along. These factors, most likely, were also correlated with increasing tariff preferences

for Mexican imports as well as the changing macroeconomic environment under the NAFTA. Doan, et.

al. noted that many observers believe that NAFTA was an important catalyst for foreign investment in

Mexico insofar is it signaled that permanent changes would be made to liberalize the Mexican economy.

They report that, by 2002, the stock of U.S. direct investment in Mexican food industries accounted for

$1.4 billion, based on data from the Department of Commerce. Moreover, data on foreign direct

investment (FDI) in Mexico from Mexican sources indicates that foreign investment in the food,

beverage, and tobacco sector amounted to $6.4 billion from January 1999 to September 2004 (Secretaria

de Economia). Almost half of that total originated from U.S. companies.

In the edible vegetables sector, new product varieties arose from new varieties of tomatoes

(grape) that met the changing tastes of U.S. consumers for such products. In addition, the expansion of

greenhouse technologies increased U.S. imports of a variety of vegetables from Mexico, including

tomatoes, cucumbers, and peppers. In the edible fruit and nuts sector, the largest growth in new products

was in imports of avocados. Such imports accounted for $226.7 million in U.S. imports or 59 percent of 

the new trade value in this sector in 2005. The expansion in U.S. imports of avocados from Mexico

resulted from the lifting of a longstanding ban in 1997 that had been imposed by the United States to

prevent the introduction of plant pests. In addition, new imports of limes also contributed to new trade

varieties in this sector. In the case of limes, although tariffs were eliminated under NAFTA, the growth of

new varieties was accelerated by Hurricane Andrew in 1992 which decimated the Florida industry. 

In the processed foods sector, U.S. sugar policies, in addition to reduced tariffs on U.S. products,

likely spurred the development of new export varieties in this sector.5

 Industry sources have reported that
15

many U.S. confectionary companies have moved their manufacturing operations to Mexcio, primarily due

to access to cheaper labor and sugar prices. As noted above, new product varieties in Mexico’s exports of

dairy products and preparations also increased following the NAFTA. FDI in those industries in Mexico

totaled over $1.0 billion between January 1999 and September 2004, equivalent to almost 17 percent of

the FDI in the agriculture, food, and beverage industries during that period (Secretaria de Economia). 

There was an especially large increase in FDI in 2003 and 2004 in the production of condensed and

powdered milk, with a corresponding increase in Mexico’s exports of these products to the United States.

Conclusions

To date, there has been much interest by economists on analyzing the relationship between

development of new export varieties and trade liberalization. While a number of papers have examined

the relationship between trade liberalization and trade variety indexes, few have examined the relationship

between the development of new varieties and trade flows. This paper has attempted to measure the

importance of new varieties in U.S. imports of agricultural products from Mexico under the NAFTA, and

to provide information on some of the factors that likely affected such trade flows.

Overall, the data indicate that while it is important to examine the relationship between trade

liberalization and changes in export variety, the impact on trade flows may differ, depending on the level

of trade in new goods tariff lines. An examination of U.S. agricultural imports from Mexico also showed

that tariff liberalization, along with such factors as U.S. policies, disruptions in U.S. supplies, foreign

direct investment, and the ability of the Mexican industry to meet U.S. phytosanitary standards and to

invest in products that met the changing tastes of U.S. consumers were also factors affecting

developments in new goods and industries.
16

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