Foreign Direct Investment in Mexico (FDI) Essay

Impact of NAFTA on Mexico’s manufacturing industry – Effect on Productivity, Wages rates, Incomes, and Investments in FDI

"In 1994, both countries [Mexico and the United States] signed the North American Free Trade Agreement (NAFTA) which has increased their mutual trade and foreign direct investment. Between 1994 And 2005, the US-Mexico foreign direct investment flows increased substantially from 16,968 billion to $71,423 billion. By 2007, the Mexican commercial relationship with the U.S. almost tripled from $297 billion to $930 billion." [2] This mutual increase in business inherently has had an attendant growth in "the number of foreign enterprises who have situated in each country." [2] With this increase in international business and trade comes cultural shifts and increased globalization and differences in managerial functions.

In 1994, the North American Free Trade Agreement (NAFTA) was enacted between two industrial countries and a yet still developing nation. This was an agreement that was the first of its kind due to the relationship that the countries had and the investment opportunities that it presented. The United States, Canada, and developing Mexico decided to work towards eliminating most tariffs and non-tariff barriers between the three in order to increase the flow of trade in goods and services. Since its enactment NAFTA has led to the providing of over 40 million more jobs throughout the countries, and it has also tripled merchandise trade between the three participants to an astounding $946 billion USD in 2008 (NAFTA Now). However even then it is still not very clear whether enacting NAFTA was worth the time and effort and in fact the United States may have been better off not having joined NAFTA.

What impact will the prospect of deprivatization have on investment by managers of privatized firms?

Mexico's trade with Asia is on the rise which is important to the country as it wants to reduce its overreliance on the U.S. market

The North American Free Trade Agreement, commonly known as the NAFTA, is a trade agreement between the United States, Canada and Mexico launched to enable North America to become more competitive in the global marketplace (Amadeo, 2011). The NAFTA is regarded as “one of the most successful trade agreements in history” for its impact on increases in agricultural trade and investment among the three contracting nations (North American Free Trade Agreement, 2011). Supporters and opponents of the NAFTA have argued the effects of the agreement on participating nations since its inception; yet, close examination proves that NAFTA has had a relatively positive impact on the economies of the United States, Canada, and Mexico.

According to the CIA, Mexico has become the US ' second-largest export market and third-largest source of imports. In 2014, two-way trade in goods and services exceeded $590 billion. Mexico has free trade agreements with 46 countries, putting more than 90% of trade under free trade agreements. In 2012, Mexico formally joined the Trans-Pacific Partnership negotiations and formed the Pacific Alliance with Peru, Colombia, and Chile. Mexico’s economy is made up from the agriculture industry and several other industries. The agricultural products are: corn, wheat, rice, beans, fruit, cotton, coffee, wood products, and soybeans and the industries services are: iron and steel, food and beverages, tobacco, chemicals, petroleum., textiles, mining, and tourism. (CIA.GOV) In Coastal cities like Cancun, tourism, is an essential part of local economy. A clear majority of Mexico’s population lives in poverty. According to Boundless, 44.2% of Mexico’s population lives below the poverty line as defined by the country’s National Council of Social Development Policy Evaluation. This part of the population has trouble meeting basic human needs such as stable shelter, food, and health care. According to Geo-Mexico, the same report found that almost 60% of Mexico’s population matched the criteria for “lower class”, while only 1.7% of the population could be best described as “upper class.” Mexico’s wealth

Since NAFTA was enacted, U.S. foreign direct investment (FDI) in Canada and Mexico more than tripled to $348.7 billion (as of 2007, latest data available). Canadian and Mexican FDI in the U.S. grew to $219.2 billion.

According to the CIA, Mexico has become the US ' second-largest export market and third-largest source of imports. In 2014, two-way trade in goods and services exceeded $590 billion. (###) Mexico has free trade agreements with 46 countries, putting more than 90% of trade under free trade agreements. (###) In 2012, Mexico formally joined the Trans-Pacific Partnership negotiations and formed the Pacific Alliance with Peru, Colombia, and Chile. Mexico’s economy is made up from the agriculture industry and several other industries. The agricultural products are: corn, wheat, rice, beans, fruit, cotton, coffee, wood products, and soybeans and the industries services are: iron and steel, food and beverages, tobacco, chemicals, petroleum., textiles, mining, and tourism. (###) In Coastal cities like Cancun, tourism, is an essential part of local economy. A clear majority of Mexico’s population lives in poverty. According to Boundless, 44.2% of Mexico’s population lives below the poverty line as defined by the country’s National Council of Social Development Policy Evaluation. This part of the population has trouble meeting basic human needs such as stable shelter, food, and health care. According to Geo-Mexico, the same report found that almost 60% of Mexico’s population matched the criteria for “lower class”, while only 1.7% of the population could be best

With the rise of industrialization, the question of free trade has arisen. Free trade is the elimination of taxes, tariffs and quotas over international borders. The North American Free Trade Agreement (NAFTA), consisting of Mexico, the USA and Canada, creates the largest free-trading zone in the world (Stand 51 1). Does NAFTA help or harm an economy is one of the most poignant questions? The Mexican economy seems to benefit from NAFTA through increased trade of Mexican made products and the availability of more jobs to the Mexican people; however, along with benefits comes a downside. Many American companies have taken advantage of NAFTA and moved production plants to Mexican because there they can exploit the workers. Many companies pay less than 1 dollar an hour in unsafe and unsanitary conditions.

Another well know grouping is NAFTA, a free trade agreement created in 1994 between the United States, Canada and Mexico. This created one of the largest free trade areas of the world. Its success has been astounding boosting trade between the member countries from $306bn to $930bn. However in more recent assessments it has been suggested that in the long haul it has been more damaging than helpful for Mexico; as an LEDC at the time some suggest it may have exploited. Suggestions are based on the assumptions that as a result of the NAFTA agreement Mexico's rate of development has been hindered. The most basic measure of economic progress, especially for a developing country like Mexico, is the growth of income (or GDP) per person. Out of 20 Latin American countries (South and Central America plus

Mexico began their journey to a more open economy with foreign trade and investment in the 1980’s by unilaterally lowering barriers on imports and elimination restrictions on multi-national firms. With the North American Free Trade Agreement (NAFTA) Mexico signed with United States of America and Canada in 1994, the free trade reforms of this country were solidified. Under NAFTA, Mexican tariffs on U.S. goods declined from an average of 14% in 1990 to 1% in 2001. Even though the peso crashed in late 1994, one manufacturing operation has proven to be highly successful. Maquiladoras are assembly plants that take in imported components to produce goods for export and they are the most dynamic exporters in Mexico. Hecksher-Ohlin Theorem suggests that a country will export goods that use its abundant factors intensively. The most prevalent industries maquiladoras have are apparel, electronics and auto parts. The intensive factor used in maquiladora plants is labor, which Mexico is abundant in. How it works for instance is: Mexico imports the primary sources of inputs to be assembled from United States and then exports back to them. The growth of maquiladora industry accelerated during the 1990s.

The strong influence of U.S. economy on Mexican one is confirmed analyzing Exhibit 3 with respect to foreign direct investment and exports. United States accounts for more than 45% of total FDI inflows in Mexico and, even if the Country is actually the largest host of FDI in Latin America, it’s undeniable that accordingly with economic downturns in the U.S. the figure of FDI in Mexico declines significantly (Bureau of Western Hemisphere Affairs, December 2010) like happened from 2007 to 2009 (Exhibit 4). The same mechanism act also with exports because U.S. attracts almost 80% of Mexican exports thus during periods of crisis in the U.S. Mexico suffers slowdown in foreign trade (Exhibit 5).

Mexico’s pursuit of free trade agreements with other countries is a way to bring benefits to the

Definition: An investment made by a company or entity based in one country, into a company or entity based in another country.