The Impact of Nafta on Mexico's Trade and Growth: an Econometric Exploration

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.

Some argue that globalization will, on the long term, bring all cultures as a unique Western, if not Americanized, culture, while others argue that some cultures will persist in order to keep their own essence and therefore avoid the homogenization of all cultures. Alongside pure tradition, global conflicts, contradictory political regimes and the diversity of economic systems, some cultures are bound to face issues when trying to fully fit in a global western culture, and that is why cultures are adaptable to one another, but with some limits that we will express in this essay.

Nonetheless, many analysts agree that NAFTA has made a mark. U.S.-Mexico trade continues to grow, and NAFTA and the promises it brings have lessened the impact of the Mexican recession and quickened its recovery. Healthy, growing bilateral trade, they say, depends on healthy, growing economies, and Mexico’s recovery and continuing economic liberalization should fuel that trend.

Overall, NAFTA has benefited the U.S. more as compared to Mexico since it has seeks to reduce government regulations, introduce policy reform and remove trade barriers.however mexican witnessed a significant economic growth since the existence of the treaty. These are fundamental requirements for a strong, capitalist economy. However, in the case of farm products such as corn is taken into account, NAFTA cannot claim sole rights to the significant increase in corn trade between the U.S. and Mexico as this is also dependent factors such as reduction of corn prices by the Mexican government to bring it in line with global corn prices and increased corn imports by Mexico due to drought like climatic conditions. Therefore if trade of corn products

Higher tariffs with Mexico or Canada would result in the loss of jobs for all three nations. Many of the products put together in the United States such as automobiles are started in Mexico. If the NAFTA was repeal or changed the economic effect would be felt in all three nations. The supply chain would be disrupted since many products started in one nation, and finished in another. In addition, if NAFTA was dissolve or even change it could result in higher tariffs for imports for both Canada and Mexico. However, no country would have an advantage since jobs and disruptions of the supply would occur in both country. Some of those jobs could in theory go back to America, but higher labor costs would weigh on profits of U.S. companies

According to a Congressional Research Service paper “NAFTA and the Mexican Economy”, wrote by M. Angeles Villarreal, the Specialist in International Trade and Finance. He states that “While some of the changes in the agricultural sector are a direct result of NAFTA, as Mexico faced increasing import competition

NAFTA has had positive effects on Mexico, which have not been evenly distributed in the whole country. For example, it helped improve the productivity of Mexicans. They adopted technological innovations from the US which helped them grow their automotive industries as well. Jobs increased considerably and macroeconomic volatility among Mexicans reduced. Coordination of businesses between Canada and Mexico helped Mexico adapt technological innovations from the US much easier. However, NAFTA generally failed to improve the overall economy of Mexico because there were not supportive policies to facilitate the provisions that NAFTA gave. Sectors such as the education and infrastructure development suffered as a result. This led to this

Twenty years have passed since the implantation of the North American Free Trade agreement. While it has changed Mexico in some fundamental ways, the treaty never met many of its extensive promises to close Mexico 's wage gap with the United States, boost job growth, fight poverty, and protect the environment. The hope was that freer trade would bring stronger and steadier economic growth to Mexico, providing new jobs and opportunities for its growing workforce and discouraging illegal migration from Mexico. With modernizing the Mexican economy so that it would export goods, not people. Mexico’s people feel as though NAFTA’s pledge has created a loss of national independence and a narrow income gap.

Measuring the overall economic impact of NAFTA, is challenging due to the effect of other factors such as recession, inflation, economic growth, and currency fluctuations in the economy. It appears that NAFTA neither caused a significant job loss that was predicted by opponents nor the large economic growth foreseen by proponents. Particularly in the United Stated the impact was relatively modest since the trade with Canada and Mexico accounts for a low percentage of the U.S. GDP. Nevertheless, all three countries went through the adjustment period to a more open trade and investment policies (Villarreal & Fergusson, 2014).

Trade agreements will always help countries like Mexico. NAFTA by itself increased the economy of Mexico significantly by itself. The auto industry has taken off, skills have improved and manufacturing has increased — and not just low-skilled factory jobs (Beltrame, 2013). With increasing manufacturing, the export of Mexican goods have increased as well. The value of Mexican goods exported to the United States grew from $39.9 billion in 1993 to $210.8 billion in 2007, an increase of 437 percent (Sommer, 2008). At the beginning of the deal Mexico had the smallest economy out of the three. Now the Mexican economy is on par with Canada, allowing for an increase in Middle Class in Mexico. As you can see Trade agreements allow Mexico to increase productivity, allowed skills to improve and export more products. When America invested more into Mexico, the Gross Domestic Product increased by 50 percent (Sommer, 2008).

The economy of Mexico is the 15th largest in the world in nominal terms and the 11th largest by purchasing power parity, according to the International Monetary Fund . Since the 1994 crisis, administrations have improved the country’s macroeconomic fundamentals.

The reason for Mexico’s economic growth is not just because companies are choosing to open businesses there or because of commodities, research or manufacturing. the growth of the country can also be attributed to the change in the country’s educational system and progress, modern urban culture and the emancipation of women which has led to a shrinkage in the size of families.

In the 1980s, Mexico was undergoing a number of reforms and deregulations that would protect its economy. In 1982, the Mexican government liberalized trade and allowed the international flow of capital into the country so that Mexico can integrate with the developed countries. President Miguel de la Madrid (1982-1988) lifted import tariffs under the General Agreement on Tariffs and Trade (GATT). He also facilitated reforms that welcomed direct foreign investment in the country and the increased growth of country’s financial systems. In addition to that, the economy of Mexico was growing so fast during the early 1990s. Inflation has substantially reduced and Mexico saw many foreign investors flowing and

The year 1994 marks the final year of Carlos Salinas de Gotari’s administration in Mexico. In order to boost the popularity of the party in hope of garnering more votes, Salinas went a high spending splurge which led to high deficits. Mexico’s trade deficit further deteriorated due to trade liberalization through the participation in North Atlantic Free Trade Agreement (NAFTA) in 1992, Organisation for Economic Co-operation and Development (OECD) and World Trade Agreement (WTA) in 1994. Fuelled by the overvalued peso and trade liberalization, Mexico was importing at a rate much faster than it could, leading to rising trade deficits.