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Essay on HISTORICAL ANALOGY
Abstract
This paper critically analyzes the impact of NAFTA on growth and business cycles in Mexico. The effect of the agreement in stimulating an impressive increase in trade and financial flows between Mexico and its NAFTA partners, and its impact on Mexican economic growth and business cycle dynamics, are documented with reference both to stylized facts and recent experimental research.
Mexico Vs NAFTA: An Introduction
Canada, Mexico, and the United States embarked on the world’s largest free trade area under the North American Free Trade Agreement (NAFTA). The agreement represented a turning point in global trade policy, not just on account of the size of the free trade area it created, but also concerning the range of the agreement, which covered not just commodities trade but also issues related to investment, labor markets, and environmental policies. Perhaps the most important aspect of the agreement, however, was the fact that it was struck between a developing country and highly developed economies. The result has been to stimulate a remarkable increase in trade and financial flows among the NAFTA partners and to contribute to making North America one of the most economically integrated regions in the world.
In fact, with continuous debate surrounding the costs and benefits of increased trade and financial flows, NAFTA provides an interesting case study to measure their effects on developing countries.
Isolating the effects of NAFTA on its partner countries is mainly difficult given the major other shocks that have happened over the past decade. NAFTA certainly had a noteworthy impact on the macroeconomic environment facing Mexico, given the decline in trade barriers and increased market access that the agreement provided Mexico.
Besides, a host of important other “shocks” had significant effects on Mexico and its NAFTA partners during this period, including: (i) the severe financial crisis that Mexico suffered in 1994 (the Tequila crisis)....
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