Post-NAFTA Mexico lags behind other emerging markets

Mexico's economy has languished for the past two decades, despite increased trade under NAFTA. Bloomberg analysts anticipate significant implications for Mexico-U.S. relations and for the Mexican presidential election next year.
By Kyle Bates | Nov 29, 2017
When Mexican officials signed the 1994 North American Free Trade Agreement (NAFTA) with Canadian and U.S. counterparts, they expected that increased trade under the agreement would boost all three nations' economies. Bloomberg analysts find that the exact opposite has happened, with Mexican wage growth and economic growth no better today than they were pre-NAFTA.

"The main idea was to promote convergence in wages and standards of living,'' said Gerardo Esquivel, an economics professor at the Colegio de Mexico, told Bloomberg. "That has not been achieved.'' And what meager growth there's been, Esquivel added, has mostly gone to "the upper part of the distribution.''

And income inequality has remained consistent since the mid-1990s. More than half of Mexicans still live below the poverty level.

Mexico's economy has grown 2.5% a year since 1994, less than half the developing world's average. Iran, Egypt, and Turkey all achieved more economic growth than Mexico in that time period, according to the International Monetary Fund. This was despite Egypt and Turkey's own internal strife and the sanctions that have shut Iran out from most of the global economy.

Mexican policy analysts disagree on NAFTA's role in economic troubles. But Esquivel blames the Mexican government for doing too little post-NAFTA to promote domestic drivers of economic growth, such as raising labor income, boosting government spending, and expanding private businesses' access to credit.

Bloomberg analysts warn that continued economic stagnation will fuel more illegal immigration into the United States. It may also reshape the Mexican presidential elections next year, in which the frontrunner, leftist Andres Manuel Lopez Obrador, promises to usher in a "new economic model" if he wins.

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