Many countries are reducing trade barriers and promoting regional economic integration. A result of this is the rising of free-trade areas in which the belonging countries trade freely among themselves without tariffs or trade restrictions.
One example for a free-trade area is the North American Free Trade Agreement (NAFTA) founded by the U.S., Mexico and Canada. When NAFTA took effect on January 1, 1994, it created the world´s largest free-trade zone with a combined population of over 416 million and a total GDP of $12 trillion. Of course, the U.S., as the world´s largest single market, dominates the North American business environment. The goal of NAFTA is to eliminate all the trade barriers between the three countries over a 15-year period, completed in 2009. NAFTA also substantially reduces, but does not completely eliminate, nontariff trade barriers like import quotas, sanitary regulations, and licensing agreements.
From the beginning, NAFTA had a lot of opponents in the U.S. as well as in Mexico. For example, U.S. labor unions feared a loss in jobs because of dislocating production from the USA to Mexico by reason of lower wages. In Mexico, farmers opposed and still opposing NAFTA because of the high U.S. subsidies on agricultural products that are imported to Mexico. There were also beliefs from environmental, social justice, and other advocacy organizations stating that NAFTA has unfavorable impacts on non-economic areas like public health or environment.
On the other hand, Mexican proponents supporting NAFTA argued that open trade could reduce migration from Mexico into the U.S. in the long run since NAFTA brings an improvement of the Mexican economy relative to the U.S. economy (Acevedo & Espenshade, 1992, p. 742).
Between 1994 and 2003 Mexico´s average annual GDP growth was 2.7 percent (Hufbauer & Schott, p. 2). At the first sight, NAFTA seems to be a benefit for the Mexican economy at the whole. Nevertheless, there are gainers and losers as a result of free trade.
The content of this paper is to have a closer look on the Mexican economy and to answer the following three questions:
1. Can the trade pattern between Mexico and the U.S. be determined by using economic models?
2. Can the winners and losers that are resulting from the trade pattern between the U.S. and Mexico be explained with these models?
3. According to the economic models of international trade, does Mexico benefit like predicted?
Inhaltsverzeichnis (Table of Contents)
- About NAFTA
- Opinions For and Against NAFTA
- The Economic Impact of Reducing Tariffs
- Mexico's Winners and Losers from the U.S.-Mexican Trade Pattern
- The Heckscher-Ohlin Theory
- The Expected Gainers and Losers from Free Trade in Mexico
- The Trade Pattern between Mexico and the United States
- Who in Mexico gains and loses from NAFTA?
- Low-Skilled Workers
- Skilled Workers
- Farmers
- Conclusions
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This paper analyzes the economic impact of NAFTA on Mexico, focusing on whether established economic models can predict the resulting trade patterns and identify winners and losers. It investigates whether Mexico benefited from NAFTA as predicted by these models.
- The impact of reduced tariffs on the Mexican economy.
- The application of the Heckscher-Ohlin theory to the Mexican-US trade relationship.
- Identification of winners and losers within the Mexican economy due to NAFTA.
- Analysis of the trade patterns between Mexico and the United States.
- Evaluation of whether Mexico experienced the predicted benefits of NAFTA.
Zusammenfassung der Kapitel (Chapter Summaries)
About NAFTA: This chapter introduces the North American Free Trade Agreement (NAFTA), highlighting its creation as a free-trade area among the US, Mexico, and Canada. It emphasizes the significant reduction in tariffs, particularly on the Mexican side, leading to the creation of the world's largest free-trade zone. The chapter details the substantial decrease in Mexican tariffs from an average of 12 percent in 1993 to approximately 0.2 percent in 2001, illustrating the transformative effect of NAFTA on Mexican trade policies and integration into the North American market. This initial reduction in trade barriers sets the stage for the subsequent analysis of NAFTA's economic consequences in Mexico.
Opinions For and Against NAFTA: This chapter explores the diverse perspectives surrounding NAFTA, examining both the support and opposition to the agreement. Opponents, including US labor unions and Mexican farmers, voiced concerns about job displacement due to cheaper labor in Mexico and the negative impact of US agricultural subsidies on Mexican farmers respectively. Further opposition stemmed from fears of US influence over Mexican policy and potential negative impacts on areas outside of pure economics. Conversely, proponents argued that NAFTA would improve the Mexican economy, potentially reducing migration to the US and attracting further investment into Mexico. This chapter highlights the complex and often conflicting viewpoints that surrounded the implementation of NAFTA, paving the way for a more nuanced understanding of its effects.
The Economic Impact of Reducing Tariffs: This chapter focuses on the theoretical economic benefits of free trade and tariff reduction. It introduces a figure (Figure 1, not included here as it is not provided in the text), likely depicting the welfare gains from reduced tariffs, illustrating how lower tariffs impact domestic producers and consumers. Although the text only provides a brief summary, the context strongly suggests that this section lays the groundwork for understanding the expected positive effects of NAFTA by explaining the general economic principles involved. The discussion of welfare gains acts as a crucial foundation for later analysis of NAFTA's actual impact on the Mexican economy.
Mexico's Winners and Losers from the U.S.-Mexican Trade Pattern: This chapter delves into a detailed analysis of the winners and losers in Mexico resulting from the altered trade patterns after NAFTA. The chapter uses the Heckscher-Ohlin theory to analyze the expected gains and losses from free trade in Mexico, examining its impact on various sectors of the Mexican economy including low-skilled and skilled workers, and farmers. A comparison is drawn between the theoretical predictions of the model and the observed real-world effects. This comprehensive examination of the multifaceted consequences of NAFTA is vital for a complete understanding of the agreement's overall effect on Mexico.
Schlüsselwörter (Keywords)
NAFTA, Mexico, US trade, tariffs, free trade, Heckscher-Ohlin theory, economic impact, winners and losers, low-skilled workers, skilled workers, farmers, agricultural subsidies, economic models, international trade.
NAFTA's Economic Impact on Mexico: Frequently Asked Questions
What is the purpose of this document?
This document provides a comprehensive overview of a paper analyzing the economic impact of the North American Free Trade Agreement (NAFTA) on Mexico. It includes the table of contents, objectives, key themes, chapter summaries, and keywords.
What are the main topics covered in the paper?
The paper examines the economic impact of NAFTA on Mexico, focusing on whether established economic models, specifically the Heckscher-Ohlin theory, accurately predicted the resulting trade patterns and identified winners and losers. It investigates whether Mexico benefited from NAFTA as predicted by these models. Key areas of focus include tariff reduction, the application of the Heckscher-Ohlin theory to the Mexican-US trade relationship, and the identification of winners and losers within the Mexican economy (low-skilled and skilled workers, farmers) due to NAFTA.
What is the Heckscher-Ohlin theory and how does it relate to NAFTA?
The Heckscher-Ohlin theory is an economic model used to analyze the impact of free trade on different factors of production (like labor and capital). The paper applies this theory to understand the expected winners and losers in the Mexican economy due to the changes in trade patterns following NAFTA's implementation. It compares the theory's predictions with the actual observed outcomes.
Who were the predicted winners and losers in Mexico under NAFTA?
The paper analyzes the impact of NAFTA on various groups in Mexico. It explores the expected and actual effects on low-skilled workers, skilled workers, and farmers. The predictions are based on the Heckscher-Ohlin theory, which suggests that some groups might benefit while others might suffer from increased trade.
What were the arguments for and against NAFTA?
Proponents of NAFTA argued that it would improve the Mexican economy, reduce migration to the US, and attract investment. Opponents, including US labor unions and Mexican farmers, expressed concerns about job displacement in the US and negative impacts on Mexican farmers due to cheaper labor and US agricultural subsidies, respectively. Further concerns involved potential negative impacts beyond purely economic factors and the influence of US policy on Mexico.
What was the impact of tariff reduction on the Mexican economy?
The paper analyzes the significant reduction in Mexican tariffs following NAFTA, from an average of 12% in 1993 to approximately 0.2% in 2001. This section likely explores the theoretical and practical economic effects of this dramatic tariff reduction, possibly using a model to show welfare gains and losses.
What is the overall conclusion of the paper (as summarized)?
The paper aims to evaluate whether Mexico experienced the benefits predicted by economic models like the Heckscher-Ohlin theory in the aftermath of NAFTA. The summaries suggest a detailed examination of the winners and losers across different sectors of the Mexican economy to determine the overall impact of the agreement.
What are the key terms associated with this research?
Key terms include NAFTA, Mexico, US trade, tariffs, free trade, Heckscher-Ohlin theory, economic impact, winners and losers, low-skilled workers, skilled workers, farmers, agricultural subsidies, economic models, and international trade.
- Quote paper
- Dennis Pohlmann (Author), 2006, The economic impact of NAFTA on Mexico, Munich, GRIN Verlag, https://www.grin.com/document/67522
