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

1994  2004* 

Population (millions) 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

Total Merchandise Exports (US$ billions)

71 215

Exports as % of GDP 17% 32%

Total Merchandise Imports (US$billions)

91 216

Imports as % of GDP 22% 32%

Public Debt/GDP 32% 23%

Key Economic Indicators for Mexico

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)

QuestionsQuestions• Is NAFTA good or Is NAFTA good or

bad for Mexico?bad for Mexico?– Do the aggregate Do the aggregate economic gains economic gains merit the social merit the social costs?costs?

•What is the future What is the future of NAFTA in of NAFTA in Mexico? How will Mexico? How will Mexico change as a Mexico change as a result of the result of the agreement?agreement?