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Did NAFTA actually help Mexico?

15 December 2009

Elisabeth Malkin of the New York Times reports that according to the Carnegie Endowment for International Peace, the answer is NO:

… Local companies went out of business because they could not compete with imports. Foreign companies that invested in Mexico did not source from Mexico, and Nafta’s conditions prevented Mexico from requiring local purchases. At the same time, public investment fell because Mexico adopted strict fiscal policies to achieve macroeconomic stability. The study estimates that Mexico’s overall investment rate has hovered around 19 percent of gross domestic product, compared to China’s rate of about 40 percent over the last two decades.

American jobs did move south, particularly into the export sector. The growth in services — new supermarkets, banks, tourism — also created jobs. But overall, Mexico was unable to create enough jobs to make up for all the jobs lost because of competition from imports, particularly purchases of subsidized grains from the United States.

The oversupply of labor, along with government policies that succeeded in keeping wages low, have led to a slight increase in the gap between average wages in the United States and Mexico — precisely the opposite of what Nafta was expected to do.

Full article here.

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