case study: In 1994 Mexico, along with Canada and the United States, signed the North American Free Trade Agreement - an agreement that, has become highly controversial.But Mexico's turn from import-substituting industrialization to relatively free trade actually began almost a decade before the country joined NAFTA.

Mexico's turn toward free trade reversed a half-century of history.Like many developing countries, Mexico turned protectionist during the Great Depression of the 1930s.After World War II, the policy of industrialization to serve a protected domestic market became explicit.Throughout the '50s and '60s, trade barriers were raised higher, as Mexican industry became increasingly self-sufficient.By the 1970s, Mexico had largely restricted imports of manufactured goods to such items as sophisticated machinery that could not be produced domestically except at prohibitive cost.

Mexican industry produced very little for export; the country's foreign earnings cam largely from oil and tourism, with the only significant manufacturing exports coming from maquiladoras, special factories located near the U.S. border that were exempt from some trade restrictions.

By the late 1970s, however, Mexico was experience economic difficulties, including rising inflation and growing foreign debt.The problems came to a head in 1982, when the country found itself unable to make full payments on its foreign debt.This led to a prolonged economic crisis - and to a radical change in policy.

Between 1985 and 1988, Mexico drastically reduced tariffs and removed most of the import quotas that had previously protected its industry.The new goal of policy was to make Mexico a major exporter of manufactured goods, closely integrated with the U.S. economy,.The coming of NAFTA in the 1990s did little to reduce trade barriers, because Mexico had already done the heavy lifting of trade liberalization in the 1980s.NAFTA did, however, assure investors that the change in policy would not be reversed.

So how did the policy change work?Exports did indeed boom.In 1980, Mexican exports were only 12.7 percent of GDP - and much of that was oil.By 2005, exports were up to 29.9 percent of GDP, primarily manufactures.Today, Mexican manufacturing, rather than being devoted to serving the small domestic market, is very much part of an integrated North American manufacturing system.

The results for the overall Mexican economy have, however, been somewhat disappointing.Per capita income has risen over the past 20 years, but the rate of growth has actually been lower than that achieved when Mexico was pursuing a policy of import substituting industrialization.

Does this mean that trade liberalization was a mistake?Not necessarily.Most (but not all) economists who have looked at Mexican performance blame relatively low growth on such factors as poor education.But the fact is that Mexico's turn away from import substitution, while highly successful at making Mexico an exporting nation, has not delivered as much as hoped in terms of broader economic progress.

question:)Build a case to argue that specialization in manufacturing for Mexico would entail significant gains from trade?