The Mexican and U.S. Economies After Twenty Years of NAFTA

Abstract

:Contrary to the promises of the leaders who promoted it, NAFTA did not make Mexico converge to the Uunited Sstates in per capita income, nor did it solve Mexico’s employment problems or stem the flow of migration. NAFTA did foster greater U.S.-Mexican integration and helped transform Mexico into a major exporter of manufactured goods. The benefits for the Mexican economy were attenuated, however, by heavy dependence on imported intermediate inputs in export production, as well as by Chinese competition in the U.S. market and domestically. The long-run increase in manufacturing employment in Mexico (about 400,000 jobs) was small and disappointing, while U.S. manufacturing employment plummeted by 5 million—but more because of Chinese imports than imports from Mexico. In both Mexico and the Uunited States, real wages have stagnated while productivity has continued to increase, leading to higher profit shares and a tendency toward greater inequality.