The NAFTA Promise and the
North American Reality:
The Gap and How to Close It
Dr. Robert A. Pastor
Professor and Director
Center for North American Studies
American University
Washington, D.C
October 31, 2013
American University
Washington, D.C.
Introduction & Organization of the Conference
 Fracturing a Continent
 The colonial encounter
 Independence
 War and uneven development
 Limits to friendship/distant neighbors
 The 1980s revolution: U.S.-Canada FTA
 NAFTA
 The Debate and the Gaps
 Panels
Population and GDP
Population of North America, Selected Years (in Millions)
Year
1800
1900
1950
1980
1990
2009
Mexico
5.6
13.6
26.0
67.0
82.0
109.6
United States
5.3
75.0
150.0
226.0
249.0
314.7
Canada
0.3
5.3
14.0
24.0
27.0
33.5
North America
11.2
93.9
190.0
317.0
358.0
457.8
GDP of North America, Selected Years (in Millions of USD)
Year
1820
1900
1950
1980
1990
2009
Canada
$738
$15,887
$102,164
$268,893
$582,723
$1,337,578
Mexico
$5,000
$18,585
$67,368
$194,357
$262,710
$883,741
United States
$12,548
$312,499
$1,455,916
$2,767,500
$5,750,800
$13,898,300
U.S. to Mexico
U.S. > 1.5x
U.S. > 16x
U.S. > 21x
U.S. > 13x
U.S. > 21x
U.S. > 15x
U.S. to Canada
U.S. > 17x
U.S. > 19x
U.S. > 14x
U.S. > 10x
U.S. > 10x
U.S. > 10x
Source: World Bank Databank, World Development Indicators; Bolt, J. and J. L. van Zanden (2013). The First Update of
the Maddison Project; Re-Estimating Growth Before 1820. Maddison Project Working Paper 4.
The Three NAFTA Gaps
 Trade
 Foreign Investment
 Income Gap
U.S. Trade with North America, 1992-2012
AAGR is Average Annual Growth Rate. Sources: TradeStats Express, U.S. Census Bureau, OECD, WTO, Industry
Canada
In 2010, President Obama announced the National Export Initiative, which aimed to double exports
within 5 years; this would mean an increase from $1.84 trillion in 2010 to $3.68 trillion in 2015. If we
had sustained the same rate of growth in North America after 2000, this would have accounted for
1/8th of that goal.
Foreign Direct Investment in North America,
1987-2011
Sources: UNCTAD, World Investment Report 2006: FDI from Developing and Transition Economies: Implications for Development; Inward FDI stock,
by Host Region and Economy, 1980 - 2006. Available at: http://stats.unctad.org; Bureau of Economic Analysis, Balance of Payments and Direct
Investment Position Data: U.S. Direct Investment Abroad. Available at:
http://www.bea.gov/international/ii_web/timeseries2.cfm?econtypeid=1&dirlevel1id=1&Entitytypeid=1&stepnum=1; Bureau of Economic Analysis,
Foreign Direct Investment in the U.S.: Balance of Payments and Direct Investment Position Data. Available at:
http://www.bea.gov/international/di1fdibal.htm; SourceOECD, International Direct Investment Statistics. Available at:
http://miranda.sourceoecd.org/vl=4415314/cl=17/nw=1/rpsv/ij/oecdstats/16081080/v45n1/s1/p1; Statistics Canada, Table 376-0051: International
Investment Position, Canadian direct investment abroad and foreign direct investment in Canada. Available at: http://www.statcan.ca.
Foreign Direct Investment in North America
Income Disparity
 Between 1980 and 2011, the income gap
between Mexico and its Northern neighbors
widened
1980
1990
1993
2000
2008
2011
GDP pc in North America (1980 - 2011)
GDPpc (Current USD)
GDPpc as % of NA GDPpc
Canada
Mexico
U.S.
NA GDPpc Canada
Mexico
US
$10,934
$2,826
$12,180
$25,939
42%
11%
47%
$20,968
$3,116
$23,038
$47,122
44%
7%
49%
$19,549
$4,525
$25,327
$49,400
40%
9%
51%
$23,560
$5,817
$35,082
$64,458
37%
9%
54%
$45,100
$9,893
$46,760 $101,753
44%
10%
46%
$50,345
$10,047
$48,112 $108,505
46%
9%
44%
How to Close the Income Gap?

The North American Development Bank commissioned a research project
from the Center for North American Studies at American University in 2005
to estimate what it might cost to begin to narrow the income gap between
Mexico and its northern neighbors. As the principal cause of undocumented
migration to the United States from Mexico is the income gap – – not jobs,
since most undocumented workers leave jobs in Mexico – – it was felt that a
narrowing of that gap might have the greatest impact on reducing
undocumented migration over the long term.

The research was done by Dr. Robert Pastor, Sherman Robinson, Samuel
Morley, and Carolina Diaz Bonilla, using a dynamic computable general
equilibrium model. They asked how Mexico could generate an annual rate of
growth of 6%, assuming that would be twice the annual rate of growth
during the decade by the US and Canada, and if Mexico succeeded, it would
reduce the development gap by 20% in a decade. That would at least give
Mexicans a sense of progress and hope that someday the gap would close.

Their model suggested that Mexico would need to increase its capital
investment to the level of 30% or more of GDP and, and most of that would
need to come from foreign savings. Together, the researchers proposed an
investment fund of $20 billion a year that would mostly fund transportation,
infrastructure, and rural community education in Mexico.
How to Close the Income Gap?

The proposed North American Investment Fund would be administered by the
World Bank, but would be overseen by the US, Canada and Mexico, each of whom
would contribute. It was clear that more funding would close the gap faster, but at
the time, the feasibility of seeking such funds seemed so remote that they didn't
propose anything larger.

A customs union would yield $45 billion a year that could be invested in such a
fund, and if new funding for border fencing could be diverted for development, that
would offer an equivalent amount of funds.
Three Other NAFTA Gaps
 NAFTA –over-promised
 Initial success proved unsustainable without plan or follow-up
 New challenges, lack of response
Could this be a North American moment? The Biden Challenge.
The New North American Agenda: Panels
 Panel I: Competitiveness in a World of Three Regions
 World trade and production are increasingly divided among three
regions: the EU, East Asia, and North America
Regional Share of World Product, 2001 and 2011
• In 2001, 83% of
world product in
three regions
• In 2011, 75% of
world product in
three regions
Sources: UN Stats Division, National Accounts Estimates of Main Aggregates ; World
Bank, World Databank; CIA, World Factbook . 2001:15.
 Panel II: Shared Responsibility & Institutional Collaboration for
Security Issues and Judicial Reform
 Panel III: Energy and the Environment
Source: TheStar.com
Source: Politico.com
Luncheon Dialogue:
New Social Demography of North America
Mexican-Origin and Hispanic Population in the U.S., 1970–2050
Number and Percent of Foreign-Born Population of Canada, 1901-2006
•
As of 2010, there were 30.6 million
Mexican-origin people living in the
U.S., which will more than double by
2050– twice the population of Canada
•
85% of Mexicans say they have
friends or relatives living in the U.S.,
and 21% say they receive money from
them
Source: “Hispanics in the United States,” U.S. Census
Bureau, Population Division, Ethnicity and
Ancestry Branch; Pew Global Attitudes Project,
“Mexicans and Salvadorans Have Positive
Picture of Life in U.S. (October 24, 2013)
•
Since 1961 at least 15% of Canada’s
population has been foreign born
Source: Statistics Canada, censuses of population,
1901 to 2006.
Luncheon Discussion Part II: North American
Values & Attitudes: Tri-national Poll
 The three countries want to collaborate over a wider range
of issues
Panel IV: Organizing the Three Governments and Nations
to Close the Gap: Visions and Institutions
 Does North America need a vision?
 How should each government reorganize itself internally to more
effectively realize North American challenges?
 Should the governments address their problems independently,
bilaterally, or trilaterally?
 Do we need to modify existing institutions or create new ones to
accomplish these goals?
Panelists
 Moderator: Andrés Oppenheimer, Senior International Columnist, Miami Herald
 Roberta Jacobson, Assistant Secretary of State, Western Hemisphere Affairs, U.S.
 Sergio Alcocer, Undersecretary for North America, Ministry of Foreign Relations,
Mexico
 William Crosbie, Assistant Deputy Minister and Chief Security Officer, Foreign
Affairs and International Trade, Canada
Summary and Conclusion
 What have we learned and where do we go from here?
 What recommendations should we promote?
 What is the role of non-governmental organizations, civil
society, and business in promoting a North American
strategy?
 What strategy do we recommend for the next North
American leaders summit?
The Biden Challenge
"There is no reason why North America cannot be the most
prosperous and most economically viable place of the world in the
21st century..." Then after spelling out the most comprehensive
North American agenda, he said, "we have been convinced of your
message; now make us do it. Now make us do it. Hard-working
people in our countries are building our economic partnerships from
the ground up every single solitary day. Our job is to take the difficult
steps that make their job easier.“
-Vice President Joe Biden, May 2013
The essential challenge of the conference: can the three
nations, working together, collectively improve the lives of all
of their citizens?