Openness and Technology Diffusion in Payment Systems: The Case of NAFTA

We study the relationship between openness and payment system development. In particular, we analyze how the existence of technology diffusion from a more developed country fosters a transformation of payment choice in a less developed country. We apply our analysis to Mexico. Economic growth in Mexico was not high enough to cause a transformation of payment choice observed in the data after 2001. We argue that the switch towards electronic payments can be attributed to openness and related payment technology spillovers from the US in the context of NAFTA.