nafta: an introduction
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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?
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