Weekly Report - 23 December 2003
NAFTA'S FIRST DECADE - REVIEW: `Free trade alone is not enough'
Ten years on, it is clear that membership of Nafta brought a number of benefits to Mexico, but it is equally clear that free trade alone did not suffice to help Mexico overcome old problems and start catching up with the US. These are the main conclusions of a report prepared by the World Bank to help acquaint countries of the region with possible effects of the Free Trade Area of the Americas (FTAA), currently being negotiated.
The 346-page report, Lessons from Nafta for Latin America and the Caribbean Countries: A Summary of Research Findings, was co-authored by World Bank economists Daniel Lederman, William F Maloney and Luis Servén. At its launch last week, David de Ferranti, the bank's vice-president for Latin America and the Caribbean, said, `Nafta has had positive effects in Mexico but they could have been better. Free trade definitely brings new economic opportunities, but the lessons from Nafta for other countries negotiating with the US are that free trade alone is not enough without significant policy and institutional reforms.'
The authors acknowledge the difficulty of separating the impact of Nafta from the Tequila Crisis experienced by Mexico in 1994-95 and from the dramatic liberalisations of trade barriers that began in the 1980s, but believe that through the use of various statistical methods they were able to identify the specific effects of the agreement.
The report estimates that without Nafta, global exports would have been roughly 25% lower; foreign direct investment (FDI), which was exceptionally high in 1994-95, around 40% less, and Mexico's per-capita income, US$5,920 in 2002, would have been 4-5% lower.
However, hopes that Mexico would make bigger strides in catching up to the US were diminished by underinvestment in education, innovation and infrastructure, as well as low institutional quality — a term covering accountability, regulatory effectiveness, control of corruption and related issues.
Unequal effects
Moreover, the report says that the benefits of Nafta, and of trade more generally, have been unequal across regions and sectors. `Nafta definitely further plugged Mexico into the most dynamic economy in the world, but the country's development across the 1990s, including the Nafta period, was unequal,' says Guillermo Perry, the bank's chief economist for Latin America and the Caribbean. `The most developed and competitive regions and sectors have clearly benefited from the trade liberalisation, while those lagging behind have not. Extending the benefits of greater integration to all of society remains the challenge.' Some of the unequal effects included in the report are:
The 346-page report, Lessons from Nafta for Latin America and the Caribbean Countries: A Summary of Research Findings, was co-authored by World Bank economists Daniel Lederman, William F Maloney and Luis Servén. At its launch last week, David de Ferranti, the bank's vice-president for Latin America and the Caribbean, said, `Nafta has had positive effects in Mexico but they could have been better. Free trade definitely brings new economic opportunities, but the lessons from Nafta for other countries negotiating with the US are that free trade alone is not enough without significant policy and institutional reforms.'
The authors acknowledge the difficulty of separating the impact of Nafta from the Tequila Crisis experienced by Mexico in 1994-95 and from the dramatic liberalisations of trade barriers that began in the 1980s, but believe that through the use of various statistical methods they were able to identify the specific effects of the agreement.
The report estimates that without Nafta, global exports would have been roughly 25% lower; foreign direct investment (FDI), which was exceptionally high in 1994-95, around 40% less, and Mexico's per-capita income, US$5,920 in 2002, would have been 4-5% lower.
However, hopes that Mexico would make bigger strides in catching up to the US were diminished by underinvestment in education, innovation and infrastructure, as well as low institutional quality — a term covering accountability, regulatory effectiveness, control of corruption and related issues.
Unequal effects
Moreover, the report says that the benefits of Nafta, and of trade more generally, have been unequal across regions and sectors. `Nafta definitely further plugged Mexico into the most dynamic economy in the world, but the country's development across the 1990s, including the Nafta period, was unequal,' says Guillermo Perry, the bank's chief economist for Latin America and the Caribbean. `The most developed and competitive regions and sectors have clearly benefited from the trade liberalisation, while those lagging behind have not. Extending the benefits of greater integration to all of society remains the challenge.' Some of the unequal effects included in the report are:
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