Was NAFTA useful for Mexico?

Today is a day for Latam economies.

Mexico, US and canada signed NAFTA in 1994 which was pitched as a win-win agreement by trade experts. It has been 20 years since the agreement. What is the evidence?

K@W argues that NAFTA was largely beneficial for Mexico. CEPR has this policy report which argues the opposite and says there have been no gains whichever indicator one looks at.

First K@W:

Overall, Guillen states, “NAFTA has been great for Mexico. The only doubts are about whether it has been good for the United States. I believe it has been, but there is more of a mixed balance between losers and winners [in the U.S.]. For Mexico, it is a total success. The problem in Mexico, though, is that the export industry there has not been big enough to employ everybody in a large population…. Inequality has been produced, not because the wages of low-wage workers got lower, but because a significant number of workers are now receiving higher wages.

“It is obviously good, but it would be even better if, instead of only 30% of Mexican workers earning those very high wages for Mexico, you could get 70% of the workers.” For that to happen,Mexico will have to overcome its shortage of capital, he adds.

Despite such imperfections, Kemmsies believes that “NAFTA is on the cusp of being a great success,” but he also worries that “Mexico will kill the golden goose before it lays an egg” by imposing export taxes on foreign firms doing business there before those firms are fully convinced they should be in Mexico for the long haul. “Mexico has to worry about overplaying its hand” before the global automakers and other foreign investors have sunk their roots more firmly into Mexican soil.” Given the fragile state of the global economy – and the uncertainties surrounding Mexico’s ambitious reform efforts — many foreign companies “are still scared and risk averse. We are not [yet] past the start-up stage in Mexico.”

CEPR says:

As was well known at the time of NAFTA’s passage, the main purpose of NAFTA was to lock in a set of economic policies, some of which were already well under way in the decade prior, including the liberalization of manufacturing, foreign investment and ownership, and other changes.26 The idea was that the continuation and expansion of these policies would allow Mexico to achieve efficiencies and economic progress that was not possible under the developmentalist, protectionist economic model that had prevailed in the decades before 1980. While some of the policy changes were undoubtedly necessary and/or positive, the end result has been decades of economic failure by almost any economic or social indicator. This is true whether we compare Mexico to its developmentalist past, or even if the comparison is to the rest of Latin America since NAFTA. After 20 years, these results should provoke more public discussion as to what went wrong.

Phew..

No wonder eco is called dismal science..One just does not know what has worked and what has not..

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