Determinants of industrial concentration in Mexico

Abstract

This paper studies the factors influencing industrial concentration and the form in which such influence is affected by free trade. The analysis contrasts predictions of the international trade theories vs. those of the new economic geography (NEG). Findings indicate that the levels of industrial concentration have decreased since the eighties in 20% and that this behavior is explained mostly by the decrease of the economies of scale and the intensity in the use of national intermediate inputs. The main finding indicates a differential relation between concentration and the intensity in the use of national intermediate inputs, which originates in the decrease in the relative price of imported intermediate inputs associated with the start of North American Free Trade Agreement (TLCAN in Spanish), generating the disintegration of the productive chains and the decrease in concentration levels.