| Abstract: | Signing the North American Free Trade Agreement (NAFTA) liberalized trade policy and reduced tariffs between Mexico, the United States, and Canada, but activists opposed to the treaty predicted an environmental disaster. This article seeks to analyze the dynamics of environmental spending and changes in companies' profiles following NAFTA. Our results suggest that these predictions have not come true. Through an econometric model, we explore how 2,438 industries in the 1994–2002 period made environmental decisions and how much they spent on cleanup. Estimates were made with a dynamic panel model using the generalized method of moments (GMM) method. Our results suggest that environmental investment decisions depended on business size, their technological capabilities, sales performance, and the need to comply with the standards required by customers in the international market. The last section explores policies to improve compliance with Mexico's environmental regulations and to develop sustainable, eco‐friendly manufacturing. |
