Mexico: No Help From NAFTA?

Econintersect:  In the 1992 presidential campaign third party candidate Ross Perot talked about the “giant sucking sound” that would be produced by the flow of jobs from the U.S. to Mexico resulting from the enactment of the North American Free Trade Agreement (NAFTA).  Twenty years after the treaty was passed the results do not indicate that there was much economic benefit to Mexico at all.  A new study reported by Mark Weisbrot, Stephan Lefebvre and Joseph Sammut of CEPR (Center for Economic and Policy Research) indicates that the economy of Mexico has not benefited from NAFTA.  By some measures Mexico has lost ground in the Latam region over the 20 years.

Larger image available in the CEPR report accessible below.

Some data presented by the report includes:

• Mexico ranks 18th of 20 Latin American countries in growth of real GDP per person over the past 20 years.

• From 1960-1980, Mexican real GDP per person almost doubled, growing by 98.7%.  from 1994-2013 the growth was only 18.6%.

• The number of persons living below the poverty level in Mexico increased by more than 14 million from 1994 to 2012.

• The percentage of the population living below the poverty level was unchanged from 1994 to 2012 (52.3%), according to Mexican government statistics.

• The UNECLAC (United Nations Economic Commission on Latin America), which calculates poverty differently, says that Mexico saw a decline of poverty from 45% to 37%.  However this was much less than the average for all  other Latam countries (46% to 26%).

• Real wages in Mexico have risen only 2.3% from 1980 to 2012 and are nearly unchanged since 1994.

• Unemployment in Mexico has risen from 2.2% in 2000 to 5.0% today.

• There were 4.9 million family farmers driven out of business by U.S. subsidized agricultural imports.  Only about 3 million agribusiness Mexican jobs were created.

• Mexico experienced a massive emigration to the U.S. 1991-2006 due to degrading economic conditions and fewer opportunities at home.

The report points out that NAFTA was not the only negative influence on Mexico.  One thing mentioned was Mexico’s problems competing for manufacturing jobs with China where labor has been cheaper, at least until recently.  Also mentioned was the comparative disadvantage of Mexican businesses in obtaining capital financing, especially compared to China.

With Mexico’s economy increasing coupled to that of the U.S., the country has suffered from the two asset bubbles experienced by their larger neighbor (dot.com and real estate/credit booms and busts).  Following a deep recession in Mexico in 1995 (which saw a tiny GDP pullback in the U.S.) the Mexican GDP growth rate has closely mirrored the U.S.

If there has been a giant sucking sound it would be the approximately 9 million Mexicans emigrating to the U.S. since the early 1990s.  However, this was slowed by the Great Recession with the flow northward in 2009 and 2010 amounting to less than 26% of the average from 1991 through 2006.

Author Mark Weisbrot said of the study:

“Mexico did all the things that Washington wanted and was supposed to be the big winner from NAFTA.  But after 20 years, it’s pretty clear that, although some billionaires did remarkably well, the Mexican people lost. There should be more discussion of what went wrong, especially in light of the proposed Trans-Pacific Partnership Agreement, which is modeled on NAFTA.”

Click on the report cover image below to read the entire report [pdf] at CEPR.

John Lounsbury

Sources:

• Did NAFTA Help Mexico? (Mark Weisbrot, Stephan Lefebvre and Joseph Sammut, Center for Economic and Policy Research, February 2014)

• Press Release (E-mail from CEPR, 12 February 2014)