NAFTA: An Introduction
• Eliminates restrictions on the
flow of goods, services and
investments between Mexico,
Canada, and the United States
• Went into effect January 1994
• All tariffs will be phased out by
2008
Classical Liberalism’s
Perspective
• The country should benefit
from lowering trade barriers
– Better prices to consumers
– Better goods (increased quality)
– Markets for exporters
– Economic Growth
Classical Liberalism’s
Perspective
• However, freer trade has not
come without serious social
costs
– Asymmetric benefits
– Rural Mexicans have lost jobs
– Worker rights issues
– Environmental Degradation
- Social Unrest (Zapatista protests)
Neoliberal Institutionalist
Perspective
• Economic integration has
allowed Mexico to reap
absolute gains
– Increased international trading
power and influence
– US Assistance
– Monetary stabilization
– GDP growth
A Macroeconomic
Analysis
• NAFTA has been very
politically controversial
– Only 29% of Mexicans think the
treaty is helping them
• How should we evaluate the
success of a trade agreement?
A Macroeconomic
Analysis
Source: The Economist
A Macroeconomic
Analysis
Key Economic Indicators for Mexico
1994
Population (millions)
2004*
91
105
Nominal GDP ($US billions)
422
677
GDP, PPP** Basis
($US billions)
671
1,017
Per Capita GDP ($US)
4,617
6,450
Per Capita GDP in $PPPs
7,351
9,680
71
215
17%
32%
91
216
Imports as % of GDP
22%
32%
Public Debt/GDP
32%
23%
Total Merchandise Exports (US$
billions)
Exports as % of GDP
Total Merchandise Imports
(US$billions)
Source: Economist Intelligence Unit. (Congressional Research
Service)
A Macroeconomic
Analysis
U.S.-Mexican Foreign Direct Investment Positions,
1994-2003
Mexican FDI in the U.S.
1994
2,069
1995
1,850
1996
1,641
1997
3,100
1998
2,055
1999
1,999
2000
7,462
2001
6,645
2002
7,483
2003
6,680
Source: U.S. Department of Commerce, Bureau of
Economic Analysis. (Congressional Research
Service)
Questions
• Is NAFTA good or
bad for Mexico?
– Do the aggregate
economic gains
merit the social
costs?
• What is the future
of NAFTA in Mexico?
How will Mexico
change as a result
of the agreement?