The North American Free Trade Agreement and Mexican Monopolies

Issue Briefs | Economy

No. 184
Friday, January 08, 2016
by Hector Colon

Supporters of the North American Free Trade Agreement (NAFTA) among Canada, the United States and Mexico predicted the pact would boost Mexico’s economic growth and raise the living standards of its people.

However, though the agreement became effective January 1, 1994, the promised economic benefits have not been fully realized — despite the fact that the NAFTA economies make up one of the largest trading blocs in the world, with a combined annual gross domestic product of more than $19 trillion.

The negotiations leading to NAFTA focused on opening up the manufacturing sector rather than the service industries. In fact, the agreement excluded opening other sectors — such as telecommunications, media, transportation and energy. This allowed Mexican conglomerates to continue profiting from closed markets. Thus, economic liberalization under NAFTA has been a gradual process and is still incomplete. For instance, until 2015, Mexican commercial trucks were not allowed to make long-haul trips in the United States.

The Effects of NAFTA. Foreign direct investment in Mexico, coming mainly from the United States, rose sharply after NAFTA took effect [see Figure I]. As a result, the country grew into a major automobile assembler, its economy became more diversified and the quality of manufactured consumer goods increased and prices declined. But economic growth rates have remained weak, averaging 2.47 percent over the past 20 years [see Figure II]. Analysts at the research group México ¿Cómo vamos? estimate that Mexico would need to generate 1.2 million jobs per year to absorb its growing labor force. Yet in 2014, a better-than-average year, it created only 714,000 new full-time jobs. Many experts attribute this meager growth to the persistence of lucrative monopolies and oligopolies that hold back Mexico’s economic growth.

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