The North American Free Trade Agreement has a significant impact on the economies of the United States, Canada, and Mexico. It was supposed to eliminate barriers to trade between these countries. After coming into force on January 1, 1994, NAFTA has significantly influenced imports and exports between the participating countries. However, its impact on every participant of the Agreement was different. The current situation with the negotiations about NAFTA worries producers, in Mexico in particular. They can be forced to look for other markets for their goods in case of an unfavorable outcome of negotiations. This paper analyses the impacts of NAFTA on the Mexican economy, which can help to predict its further development within or outside NAFTA.
The researchers believe NAFTA contributed to the decline of cooperation and the development of competition in Mexico (García, Rivera, & Greenfield, 2015). Moreover, it influenced long-term social change in the country. Another important influence attributed to NAFTA is a decrease in wage inequality. Campoz-Vazquez (2013) studies NAFTA-related factors, which contributed to this process. The researcher singles out the following factors. First of all, the increase in levels of education influenced wage inequality. Secondly, job polarization and demand for high-quality jobs appeared, which helped to provide college graduates with suitable positions (Campoz-Vazquez, 2013). Other evidence of NAFTA’s impact on inequality in Mexico is provided by De Hoyos (2013). The researcher studies the effects of trade expansion, which resulted from the Agreement, on poverty and inequality. On the one hand, poverty was supposed to grow, affected by the peso devaluation of 1996. However, the general economic increase due to participation in NAFTA provides a cushion for Mexican currency and prevented the growth of poverty and inequality until the peso recovered between 1998 and 2000 (De Hoyos, 2013).
NAFTA was expected to be beneficial for both, farming and industry. Prina (2013) investigates the influence of the Agreement on small and large farmers. The researcher concludes the reduction of border tariff introduced by NAFTA resulted in the change of farm income distribution. Thus, since the border prices for vegetables, which are the product of small farmers’ export, increased, and for corn, which is the major import product of big farmers, decrease, small farmers benefited more from NAFTA than big farmers (Prina, 2013). Also, overall welfare was affected by NAFTA. The research provides evidence of tariff changes’ impact on welfare (Caliendo & Parro, 2014). Due to the interrelation of all sectors of the economy, NAFTA and tariff reduction influenced the growth of all spheres. Thus, for Mexico, intra-block trade increased by 118% as a result of NAFTA (Caliendo & Parro, 2014).
On the whole, economic studies prove the positive effects of NAFTA on the Mexican economy. Considering the close connections of the economy and other spheres, it can be concluded that HAFTA was beneficial for the social sphere as well. it positively influenced the development of small businesses, which received an opportunity to open new markets. Thus, problems with NAFTA negotiations and uncertainty of its further functioning can negatively affect the economies of the involved countries on the whole and Mexico in particular due to its initially weaker position if compared to Canada and the United States. First of all, small and medium enterprises will be influenced. They can face the necessity of looking for new markets to sell their goods. Still, this work has some limitations. It does not provide an analysis of interrelations between Mexico and other NAFTA countries, and it reflects the economy in general without a deep investigation of specific fields.
Caliendo, L., & Parro, F. (2014). Estimates of the trade and welfare effects of NAFTA. The Review of Economic Studies, 82(1), 1-44. Web.
Campoz-Vazquez, R. M. (2013). Why did wage inequality decrease in Mexico after NAFTA? Economia Mexicana: Nueva Epoca, XXII(2), 245-278.
De Hoyos, R. (2013). The effects of trade expansion: Poverty and inequality in post-NAFTA Mexico. Journal of CENTRUM Cathedra: The Business and Economics Research Journal, 6(1). Web.
García, C., Rivera, N., & Greenfield, P. (2015). The decline of cooperation, the rise of competition: Developmental effects of long-term social change in Mexico. International Journal of Psychology, 50(1), 6-11. Web.
Prina, S. (2013). Who benefited more from the North American Free Trade Agreement: Small or large farmers? Evidence from Mexico. Review of Development Economics, 17(3), 594-608. Web.