Cronies, Rents, and Import Licenses: Non-tariff Trade Controls throughout Import Substitution Industrialization (ISI) in Mexico

Abstract

This paper fills a gap in the literature about Import-substituting Industrialization (ISI) by analyzing non-tariff trade controls, mainly import licenses, with a focus on Mexico, a case that has not been studied in detail. The core questions addressed include: Which specific pattern licensing were followed? What was the economic rationale behind such pattern, and Is there evidence that non-tariff controls were ‘captured’ that is, facilitating rent-seeking? In order to answer these questions, the project takes a qualitative and quantitative approach, using primary evidence gathered in archives as well as statistics from secondary sources, which are combined in novel ways. Specifically, here we provide descriptive statistics of the licensing system, and demonstrate that the policy lacked internal consistency, an overwhelming majority of products were protected for far longer than officially specified, and that illegal source of rents from trade –smuggling and “free perimeters”– were significant. The main findings, which shed light on larger debates about ISI are that excessive protectionism was neither effective nor sustainable and that cronyism characterized the post-Second World War process of industrialization in Mexico.