Monday, December 08, 2008
[IWS] CRS: NAFTA & the MEXICAN ECONOMY [4 November 2008]
IWS Documented News Service
_______________________________
Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
________________________________________________________________________
Congressional Research Service (CRS)
Order Code RL34733
NAFTA and the Mexican Economy
November 4, 2008
M. Angeles Villarreal, Specialist in International Trade and Finance, Foreign Affairs, Defense, and Trade Division
Marisabel Cid, Research Associate, Foreign Affairs, Defense, and Trade Division
http://opencrs.com/getfile.php?rid=65645
Summary
The North American Free Trade Agreement (NAFTA), in effect since January
1994, plays a very strong role in the bilateral economic relationship between Mexico
and the United States. The two countries are also closely tied in areas not directly
related to trade and investment such as security, environmental, migration, and health
issues. The effects of NAFTA on Mexico and the state of the Mexican economy
have important impacts on U.S. economic and political interests. As NAFTA
approaches its 15th anniversary, a number of policymakers have raised the issue of
revisiting NAFTA and renegotiating parts of the agreement. Some important factors
in evaluating NAFTA include the effects of the agreement on Mexico and how these
relate to U.S.-Mexico economic relations. In the 110th Congress, major issues of
concern have been related mostly to economic conditions in Mexico, the effect of
NAFTA on the United States and Mexico, and Mexican migrant workers in the
United States.
In 1990, then Mexican President Carlos Salinas de Gortari approached the
United States with the idea of forming a free trade agreement (FTA). Mexico's main
motivation in pursuing an FTA with the United States was to stabilize the Mexican
economy by attracting foreign direct investment. The Mexican economy had
experienced many difficulties throughout most of the 1980s with a significant
deepening of poverty. The intention of Mexico in entering NAFTA was to increase
export diversification by attracting foreign direct investment (FDI), which would help
create jobs, increase wage rates, and reduce poverty.
At the time that NAFTA went into effect, the expectation among supporters was
that the agreement would improve investor confidence in Mexico, attract investment,
and narrow the income differentials between Mexico and the United States and
Canada. Measuring the effects of NAFTA on the Mexican economy is difficult
because the economy was also affected by other factors, such as economic cycles in
the United States (Mexico's largest trading partner) and currency fluctuations. In
addition, Mexico's unilateral trade liberalization measures of the 1980s and the
currency crisis of 1995 both affected economic growth, per capita gross domestic
product (GDP), and real wages.
While NAFTA may have brought economic and social benefits to the Mexican
economy as a whole, the benefits have not been evenly distributed throughout the
country. Wages and employment tend to be higher in states experiencing higher
levels of FDI and trade. The agricultural sector experienced a higher amount of
worker displacement after NAFTA because of increased competition from the United
States and because of Mexican domestic agricultural reforms. In terms of regional
effects, initial conditions in Mexico determined which Mexican states experienced
stronger economic growth as a result of NAFTA. States with higher levels of
telecommunications and transportation infrastructure gained more benefits than
poorer states with lower levels of education, infrastructure, and institutional capacity.
Some economists argue that while trade liberalization may narrow income disparities
over the long run with other countries, it may indirectly lead to larger disparities in
income levels within a country. This report will be updated as events warrant.
CONTENTS
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Mexico's Motivations for Entering NAFTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Economic Conditions in Mexico Before and After NAFTA . . . . . . . . . . . . . . . . . 3
GDP Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Poverty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Effects of NAFTA on Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Economic Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Mexican Wages and Per Capita GDP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
U.S.-Mexico Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Regional Effects of NAFTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Mexico's Agricultural Sector and NAFTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Mexican Productivity, Exports and Prices . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Rural-Urban Migration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Mexican Programs for Farmers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Views of NAFTA in Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Appendix. Map of Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
List of Figures
Figure 1. Real GDP Growth in Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Figure 2. Poverty Levels in Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Figure 3. Mexican Agricultural Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Figure 4. Mexican Public Opinion of Trade Liberalization . . . . . . . . . . . . . . . . . 18
Figure 5. Map of Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
List of Tables
Table 1. Mexican Wages and Per Capita GDP: 1996-2008 . . . . . . . . . . . . . . . . . 9
Table 2. U.S.-Mexico Trade: 1994-2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
______________________________
This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.
Stuart Basefsky
Director, IWS News Bureau
Institute for Workplace Studies
Cornell/ILR School
16 E. 34th Street, 4th Floor
New York, NY 10016
Telephone: (607) 255-2703
Fax: (607) 255-9641
E-mail: smb6@cornell.edu
****************************************
_______________________________
Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
________________________________________________________________________
Congressional Research Service (CRS)
Order Code RL34733
NAFTA and the Mexican Economy
November 4, 2008
M. Angeles Villarreal, Specialist in International Trade and Finance, Foreign Affairs, Defense, and Trade Division
Marisabel Cid, Research Associate, Foreign Affairs, Defense, and Trade Division
http://opencrs.com/getfile.php?rid=65645
Summary
The North American Free Trade Agreement (NAFTA), in effect since January
1994, plays a very strong role in the bilateral economic relationship between Mexico
and the United States. The two countries are also closely tied in areas not directly
related to trade and investment such as security, environmental, migration, and health
issues. The effects of NAFTA on Mexico and the state of the Mexican economy
have important impacts on U.S. economic and political interests. As NAFTA
approaches its 15th anniversary, a number of policymakers have raised the issue of
revisiting NAFTA and renegotiating parts of the agreement. Some important factors
in evaluating NAFTA include the effects of the agreement on Mexico and how these
relate to U.S.-Mexico economic relations. In the 110th Congress, major issues of
concern have been related mostly to economic conditions in Mexico, the effect of
NAFTA on the United States and Mexico, and Mexican migrant workers in the
United States.
In 1990, then Mexican President Carlos Salinas de Gortari approached the
United States with the idea of forming a free trade agreement (FTA). Mexico's main
motivation in pursuing an FTA with the United States was to stabilize the Mexican
economy by attracting foreign direct investment. The Mexican economy had
experienced many difficulties throughout most of the 1980s with a significant
deepening of poverty. The intention of Mexico in entering NAFTA was to increase
export diversification by attracting foreign direct investment (FDI), which would help
create jobs, increase wage rates, and reduce poverty.
At the time that NAFTA went into effect, the expectation among supporters was
that the agreement would improve investor confidence in Mexico, attract investment,
and narrow the income differentials between Mexico and the United States and
Canada. Measuring the effects of NAFTA on the Mexican economy is difficult
because the economy was also affected by other factors, such as economic cycles in
the United States (Mexico's largest trading partner) and currency fluctuations. In
addition, Mexico's unilateral trade liberalization measures of the 1980s and the
currency crisis of 1995 both affected economic growth, per capita gross domestic
product (GDP), and real wages.
While NAFTA may have brought economic and social benefits to the Mexican
economy as a whole, the benefits have not been evenly distributed throughout the
country. Wages and employment tend to be higher in states experiencing higher
levels of FDI and trade. The agricultural sector experienced a higher amount of
worker displacement after NAFTA because of increased competition from the United
States and because of Mexican domestic agricultural reforms. In terms of regional
effects, initial conditions in Mexico determined which Mexican states experienced
stronger economic growth as a result of NAFTA. States with higher levels of
telecommunications and transportation infrastructure gained more benefits than
poorer states with lower levels of education, infrastructure, and institutional capacity.
Some economists argue that while trade liberalization may narrow income disparities
over the long run with other countries, it may indirectly lead to larger disparities in
income levels within a country. This report will be updated as events warrant.
CONTENTS
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Mexico's Motivations for Entering NAFTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Economic Conditions in Mexico Before and After NAFTA . . . . . . . . . . . . . . . . . 3
GDP Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Poverty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Effects of NAFTA on Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Economic Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Mexican Wages and Per Capita GDP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
U.S.-Mexico Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Regional Effects of NAFTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Mexico's Agricultural Sector and NAFTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Mexican Productivity, Exports and Prices . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Rural-Urban Migration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Mexican Programs for Farmers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Views of NAFTA in Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Appendix. Map of Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
List of Figures
Figure 1. Real GDP Growth in Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Figure 2. Poverty Levels in Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Figure 3. Mexican Agricultural Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Figure 4. Mexican Public Opinion of Trade Liberalization . . . . . . . . . . . . . . . . . 18
Figure 5. Map of Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
List of Tables
Table 1. Mexican Wages and Per Capita GDP: 1996-2008 . . . . . . . . . . . . . . . . . 9
Table 2. U.S.-Mexico Trade: 1994-2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
______________________________
This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.
Stuart Basefsky
Director, IWS News Bureau
Institute for Workplace Studies
Cornell/ILR School
16 E. 34th Street, 4th Floor
New York, NY 10016
Telephone: (607) 255-2703
Fax: (607) 255-9641
E-mail: smb6@cornell.edu
****************************************
# posted by SBasefsky : 6:19 AM
