2. 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

3. 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

4. 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)

5. Neoliberal Institutionalist Perspective Economic integration has allowed Mexico to reap absolute gains –Increased international trading power and influence –US Assistance –Monetary stabilization –GDP growth

6. 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?

7. A Macroeconomic Analysis Source: The Economist

8. A Macroeconomic Analysis 1994 2004* Population (millions)91105 Nominal GDP ($US billions)422677 GDP, PPP** Basis ($US billions) 6711,017 Per Capita GDP ($US)4,6176,450 Per Capita GDP in $PPPs7,3519,680 Total Merchandise Exports (US$ billions) 71215 Exports as % of GDP17%32% Total Merchandise Imports (US$billions) 91216 Imports as % of GDP22%32% Public Debt/GDP32%23% Key Economic Indicators for Mexico Source: Economist Intelligence Unit. (Congressional Research Service)

9. A Macroeconomic Analysis U.S.-Mexican Foreign Direct Investment Positions, 1994-2003 Mexican FDI in the U.S. 19942,069 19951,850 19961,641 19973,100 19982,055 19991,999 20007,462 20016,645 20027,483 20036,680 Source: U.S. Department of Commerce, Bureau of Economic Analysis. (Congressional Research Service)

10. Questions Is NAFTA good or bad for Mexico?Is NAFTA good or bad for Mexico? –Do the aggregate economic gains merit the social costs? What is the future of NAFTA in Mexico? How will Mexico change as a result of the agreement?What is the future of NAFTA in Mexico? How will Mexico change as a result of the agreement?