This paper examines the impact of NAFTA on trade-related foreign R&D and total factor productivity (TFP) in Mexico. The …-output relations in Mexico. We find that i) trade with Mexico's NAFTA partners has a large and significant impact on Mexico's TFP while … trade with the rest of the OECD does not; and ii) NAFTA has led to a permanent increase in TFP in Mexico's manufacturing …