Did NAFTA Help Mexico? An Update After 23 Years

Authors

• Mark Weisbrot, Lara Merling, Vitor Mello, Stephan Lefebvre, and Joseph Sammut
• Center for Economic and Policy Research (CEPR)

Executive Summary

• NAFTA (North American Free Trade Agreement) went into effect over 23 years ago, involving Mexico, the United States, and Canada.
• Initially forecasted to boost Mexico's growth and development.
• Compared Mexico's economic performance since NAFTA with the rest of Latin America and its own past.

Key Findings

• Mexico ranks 15th out of 20 Latin American countries in GDP per person growth (1994-2016).
• Per capita GDP growth was just 1% annually over 23 years, lower than Latin America's 1.4%.
• Poverty rate increased from 1994 to 2014, with 20.5 million more Mexicans below the poverty line.
• Real wages in 2014 were almost the same as in 1994, increasing by just 4.1%.
• NAFTA had a severe impact on agricultural employment, displacing 4.9 million family farmers.
• Mexican emigration to the US surged post-NAFTA.
• Mexico's economic performance is partly attributed to competition with China and policies favoring exchange rate flexibility.

Income and Growth

• NAFTA was expected to increase growth but actual growth was only 28.7% from 1994 to 2016.
• Mexico's growth rate since NAFTA was lower than other countries in the region.
• If pre-1980 growth rates had continued, Mexico would be a high-income country today.

Agriculture and Employment

• NAFTA removed tariffs on agricultural goods but not subsidies, impacting Mexican farmers.
• 19% drop in agricultural employment; 4.9 million jobs lost in family farming.
• Increased fruit and vegetable production didn't compensate for job losses.
• Immigration from Mexico to the US soared post-NAFTA.

Economic Policy and Integration

• Mexico competes with China in the US market, facing higher wage costs and exchange rate challenges.
• Mexican Central Bank's exchange rate policies added unpredictability, affecting foreign investment.
• NAFTA linked Mexico heavily to the US economy, increasing vulnerability to US financial crises.

Conclusion

• NAFTA's objective was to lock in economic policies for growth, but resulted in economic stagnation.
• Compared to its developmentalist past or other Latin American countries, Mexico's economic performance post-NAFTA is poor.
• These results should spark public discussion on the effectiveness of NAFTA.