External Bindings and the Credibility of Reform

This paper examines enhancement of the credibility of economic policy reform through external trade and investment agreements. At one level, the role of NAFTA in anchoring recent reforms in Mexico is discussed. This is followed by more abstract treatment of how external policy bindings, through bilateral and/or multilateral agreements, may lend benefits related to the durability of reforms. In addition to helping secure the path of reform, such credibility signals may also have important effects related to assessments by international capital markets of reforms undertaken in the context of trade and investment agreements.