Effects of the Integration of Mexico into NAFTA on Trade, Industry, Employment and Economic Growth

Abstract

We present a comparison of economic development in Mexico with some OECD countries (France, Spain and the USA) and Latin American countries (Brazil and Argentina) and we analyse the evolution of employment in Mexico, having into account the positive impact that industrial development has in non-agrarian employment and the effects of the integration into NAFTA on trade and industrial development. We present an econometric model to explain non agrarian employment depending on direct and indirect effects of industrial development, and relate these findings with other studies on the effects of integration. Although the impact of integration was in many aspects positive, it is clear that it is not enough to foster industrial investment at the level necessary to achieve high rates of non agrarian employment and development in many Mexican regions. On the other hand, the problem of the negative evolution of agrarian employment of Mexico during the last years of the 20th century was more due to the consequences of the evolution of international relative prices of Agriculture than to the direct effects of the integration into NAFTA, and it was common to other countries. The main conclusions point to recommend industrial investment, to focus on regional and rural development, to increase the number of non-agrarian jobs, not only in urban areas but also in rural ones, in order to avoid compulsory emigration, and to eradicate poverty. These complementary policies would amplify the positive impact of integration and they should include a reinforcement of the recent effort to increase public expenditure on education per inhabitant in order to foster the positive effects of education on development.