The Impact of NAFTA on Mexico - Essay Example

The Impact of NAFTA on Mexico NAFTA was established as a free trade agreement between Mexico, Canada and America and it has become one of the most debated free trade agreements in the world. While the Mexican economy has suffered when it comes to agricultural sector, it has made tremendous gains in other sectors which have made the overall affect of the agreement to be positive for Mexico. As more studies are made into the topic, the picture is likely to get clearer for all concerned parties but as of now, the NAFTA has been a blessing for the Mexican economy rather than a curse. The North American Free Trade Agreement is commonly known as NAFTA and it is an agreement to promote free trade amongst the countries of America, Canada and Mexico. The agreement was signed into effect on the first of January in 1994 and it now has remained in effect for more than thirteen years ro date (World Bank Group, 2001). An understanding of the economic effects and the benefits of this agreement is important for all students of economics, sociology and business since it affects all those fields of study. As an agreement between a developing country and two countries which are considered economically developed, the first beneficiary of the agreement seem to be large American corporations that choose to deploy a part of their operations in Mexico or Canada (Hill, 2006). This benefit comes from the economic advantage of lowered recruitment and Human Resource Cost for skilled and unskilled labor as compared to the uneconomical labor market in America (Sayre & Morris, 2004). Additionally, American operations managers and executives of companies working in Mexico have the advantage of a higher standard of living in Mexico since the cost of living is lower (World Bank Group, 2001). After more than a decade of free trade with America, the Mexican economy like the Canadian economy has become very closely linked to the American economic system. Even before the establishment of NAFTA the economies of these three countries were linked on several points and the trade partnership between America and Canada has been noted by many economists such as Kacowicz (1999). NAFTA therefore becomes essential for Mexico’s continual growth and economic survival as a trillion dollar plus economy. With NAFTA, the economy of Mexico has experienced booms in recent years but as discussed by Kacowicz (1999) there is still some controversy about the application of the rules under NAFTA. This opposition comes from the economic crisis which Mexico went under soon after the signing of the treaty in the agricultural sector. However, the data collected by the World Bank and other economic agencies show that NAFTA has been mostly beneficial for the economy of Mexico since the poverty rates have gone down and the overall economic improvements have resulted in greater job opportunities for the Mexican people (World Bank Group, 2001). In fact, real incomes of Mexicans over all as well as the salaries of employees in Mexico have been on the rise and if the government continues to invest in education and other public projects for development, Mexico could become one of the fastest growing economies of the world (World Bank Group, 2001). This may mean that Mexico has to move away from the agrarian economic base it had been used to in the past but it is difficult to maintain an economy growing due to services and industry while keeping a positive outlook towards the lower returns of the agricultural sector. The research done by Kacowicz, (1999) as well as Hill (2006) shows us that NAFTA has partially destroyed the agricultural sector of Mexico. This is because American agricultural producers work with the ideas of "economies of scale", and thus are able to produce large quantities of agricultural goods at a very low price that leaves the Mexican producer out of the market. Massive amount of American agricultural products are sold at a low cost in Mexico and they dominate the Mexican agricultural markets. In fact, the situation has got to the point that Mexican farmers have left their farmland to look for other opportunities. However, despite these setbacks the Mexican government seems to be willing to cooperate since it has gained a lot more in the services and industries sectors of the country’s economy. Of course NAFTA is quite different from other economic and political unions that have taken elsewhere in the world. While the trade between the countries under NAFTA has been liberalized like the European Common Market, the national sovereignty of nations has not been altered in any way and the laws for immigration and travel between Mexico and America have in fact been tightened after 9/11 (Wikipedia, 2006). It does not show that the countries are heading towards some sort of union in the near future but it does show that they are interested in each other’s economies and are willing to cooperate where it becomes necessary. This situation is also reflected in the connection and relationship of the countries who are members of NAFTA with regard to the IMF, World Bank and the UN have been largely positive since the macroeconomic indicators for America, Canada and Mexico have been positive for several years after the creation of the treaty (World Bank Group, 2001). However, given the rapidly changing global economic situations no country or even a group of countries can remain isolated from the economic effects of a regional economic crisis like the Asian monetary crisis or the South American crisis which occurred in the late 90s (Hill, 2006). Such situations means that while countries may create alliances in economic terms with local and regional players around them, they still have to pay heed to the larger world market which is developing as other countries make advances in globalization (Kacowicz, 1999). Overall, it seems clear to me that NAFTA has resulted in positive economic development for Mexico along with positive environmental and human development since there have been several treaties signed along with and as subsidiaries to NAFTA which create measures for companies to support environmental and development causes (Wikipedia, 2006). While the development level of Mexico and especially its rural areas does not approach that of America or Canada, it can be expected that positive growth and solid governance measures from the Mexican government will help to create parity between the countries in the coming years. In conclusion, the NAFTA has been both a blessing and a challenge for the government as well as the people of Mexico but the country’s economic indicators combined with the hard data from the World Bank shows that the overall benefits of NAFTA for Mexico far outweigh the disadvantages which might have been created for the agricultural sector of the economy. For Mexicans as well as those who study economic growth, Mexico is still the land of opportunity where there is tremendous potential for growth and development. Works Cited Hill, C. 2006, Global Business Today, McGraw-Hill. Kacowicz, A. 1999, ‘Regionalization, globalization, and nationalism: Convergent, divergent, or overlapping?’, Journal of Social Transformation & Humane Governance, vol. 24, no. 4. pp. 527-556. Sayre, H. & Morris, A. 2004, Principles of Macroeconomics, McGraw-Hill. Wikipedia. 2006, Economy of Mexico. Retrieved July 30, 2007, from Wikipedia.org website: http://en.wikipedia.org/wiki/Economy_of_Mexico World Bank Group. (2001). Mexico - A comprehensive development agenda for the new era. Retrieved July 28, 2007, from World Bank Website: http://wbln0018.worldbank.org/External/lac/lac.nsf/Publications/9364AB8A25BABD6085256A4C004B3963?OpenDocument Word Count: 1,048 Read More