Economic impacts of NAFTA and transfer pricing legislation along the United States-Mexico border

Economic theory predicts that small economies benefit most from regional economic integration. There is ample anecdotal evidence of the NAFTA economic benefit for Mexico in the post-Treaty expansion, both in size and number, of the many maquiladora manufacturing plants established from Matamoros to Tijuana. The U.S. is the large economy in the NAFTA regional integration arrangement. Have the Treaty economic benefits also extended to the large economy in this tripartite agreement? Employing trade data before and after NAFTA, the dissertation investigates the economic impact resulting from the Treaty for the U.S. as a whole and its sub-regions. The other purpose of the dissertation is to separately study the transfer pricing and NAFTA regulations administered by U.S. and Mexico taxation and customs authorities. Utilizing a unique survey, an evaluation is made of whether trade laws administered by the Internal Revenue Service (IRS), the Secretaría de Hacienda y Crédito Publico (Hacienda), and the customs departments of the U.S. and Mexico are followed equally by firms of a variety of sizes, locations, industries, or corporate parentage. The U.S. is a capital-intensive country and international trade theory predicts that this sector would be most impacted by the lowering of trade barriers. The findings of this research at the national level are consistent with this theory. Growth in U.S. per capita manufacturing income resulting from NAFTA export activity is both positive and statistically significant. Per capita gross state product is a broad measure of the Treaty's economic effects. That is, gross state product captures the economic spillover and dispersion effects of trade activity resulting from NAFTA. Evidence gathered by this research suggests that the spillover and dispersion effects of the Treaty have yet to have a beneficial economic impact at the national level. At the Canada and Mexico border state level, the result is the opposite. The economic spillover and dispersion effects (i.e., per capita gross state product) have been positive and statistically significant. However, per capita manufacturing income appears not to have benefited. These findings seemingly would be anticipated due to the general absence of a manufacturing infrastructure for most Canadian and Mexican border states. Regulatory enforcement by the IRS, U.S. Customs and their counterparts on the Mexico side appears to be restricted. Reallocation of maquiladora manufacturing cost by either country's authorities to achieve a revised level of income subject to tax has not commenced in these early years of the Treaty. In addition, the research findings indicate planning for the changes implemented upon full transition to NAFTA regulations on January 1, 2001 was highly differentiated. Large multinational maquiladoras did moderate to extensive planning for the transition changes whereas the small maquiladoras did not.

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