The article link is : https://www.bloomberg.com/news/articles/2017-11-28/nafta-s

Question

The article link is : https://www.bloomberg.com/news/articles/2017-11-28/nafta-s-ugly-reality-u-s-mexico-wage-gap-is-actually-widening
Read article "Nafta's Ugly Reality U.S.-Mexico Wage Gap Is Actually Widening", attached to this assignment. Please answer the following questions: 1. Given H-O international trade theory and our discussion of trade blocs, how the USA and Mexico was going to benefit (or not) by signing the North America Free Trade Agreement? Hint: what economic sectors would benefit/lose in the USA and in Mexico? You can assume two: manufacturing and agriculture. (25 points) 2. According to the article, what is the economic current situation in Mexico? What is the economic impact of NAFTA in Mexico? Fully explain. (13 points) 3. From the article, what are the recommendations regarding economic policies? Would these policies have an impact on the competitiveness of the Mexican economy? Fully explain. (12 points)

Explanation / Answer

1) USA and Mexico both considered NAFTA as a probitable solution of imbalances that ocuured in the economy. USA has been benefited in many ways. The sectors that specially got the benefits were:-

The advantages Mexico has got and they got benefited in many sectors , which are:-

2) According to the article, The Mexican Economy growth of 2.5 percent a year since 1994 is less than half the developing-world average. Though it is pretty much same as the developed countries like USA and Canada, but the developing countries are expected to grow more faster than developed countries. Also increasing population of Mexico than USA and Canada, Divided the economic pie among more population, which means average Mexicans earn less than a American or Canadian today than before NAFTA( North AMerica Free Trade Agreement).

Though many believes that NAFTA hasn't fulfilled the promises made by Bill Clinton and  Carlos Salina , when it was signed. NAFTA clearly failed to solve the deep down problems of Mexican Econmoy. Mexico's Car industry enjoys the govt support in pre-NAFTA periode, but those sectors dissappeared , which wasn't liberalized. Jerry Das, the Canadian union Unifor points out the fact that employees at U.S. and Canadian car plants can buy the vehicles they produce with five months’ wages. “A Mexican worker in five months can only buy four tires and a steering wheel." The minimum wage rate of Mexcian labours are lower than maximum G-20 Countires. Basically the labours in mexico are underpaid. In the Nafta era Mexico's economy performance has been clearly degraded. Where most of the countries uses fiscal policy to maintain a balance economy, Mexico barely uses it. Moreover rampant crime and drag war dragged mexico's economy, which was estimateda hit to output of about 1 percentage point a year.

Acoording to the aritcle, Mexico’s own performance in the quarter-century before Nafta was significantly better. On a per-capita basis, it grew almost twice as fast, though some slowdown is normal as countries reach the middle-income bracket. This clearly proves and points out that through out the Nafta periode Mexico wage gap is widened , and also the performance of the econpomy went down over the periode.

(3) The policymaker of Mexico really should enact some policy and device to maintain a certain level of stabalized growth:

Through these policies, Mexico will reduce the dependace that it has on USA due to NAFTA. The outward flow of the labours will decrease as through proper policy the industrial factories can get nurtured and protected. More investment would come in form of FDI, that would simultaneously rise the employment. The convergence in wages and standard living and a steady growth rate can be achived through proper policies.

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