Mexico Got the Shafta from NAFTA

Gabriel Palma is one of the best progressive economists in the world. Originally hailing from Chile, he decamped to Cambridge, currently serving as one of the few Keynesians that the neoliberals that took over his department haven't kicked out. I was in his class for about a week, before I realized that in order to take graduate econometrics, you must know something about math and statistics. At that point, after spending my undergraduate years fighting the man rather than taking the tougher classes, I decided to further postpone the learning. As I take night classes these days, I am kicking myself for not having bitten the bullet while it would have been easier.

Oh well. That doesn't stop me (or you) from getting your learn on with Gabriel's work on NAFTA and Mexico. The paper is a few years old, but it remains one of the better expositions of what went down before and since NAFTA went into effect. Among his findings:

  • Just nine countries account for 90 percent of manufactured exports from developing countries. Mexico is the only one of these to thoroughly go through the neoliberal ringer, courtesy of NAFTA and NAFTA-like policy changes.

  • Oil used to dominate Mexico's exports, but now manufacturing (increasingly high technology) constitutes the vast majority.

  • Like here at home, Mexican wages are scarcely above their 1980s' levels -- whether you're looking at the maquila or non-maquila sectors. In the maquilas, you didn't have to pay anyone much of anything, since there was a bottomless pool of rural Mexicans separately getting displaced by Mexico's agriculture rules.

  • Unlike here, where bubbles and debt made up for the loss of demand brought on by the trade deficit, Mexico used export growth to make up for the loss of demand brought on by wage stagnation.

  • The traditional non-export manufacturing sectors have not seen hardly any increase in investment, meaning that the maquilas (which attracted tons of FDI) did not feed back into other sectors of the economy.

  • It turned out to be a weak substitute for real growth, however, since value added in the maquilas and auto sectors remains about where it was before NAFTA, despite the massive increase in both maquila exports and imports.

  • From just 2001-2002, 545 maquilas left Mexico for China, shedding hundreds of thousands of Mexican jobs. So much for that experiment. But as my colleague Carlos Salas shows in an upcoming paper, the few workers that got to keep their jobs have seen their wages bid up somewhat. And with absolutely none of this background, we can now see the Bush administration taking credit for the momentary respite from hell. Oh joy! A rounded development policy proposal is just around the corner, I. Am. Sure.

Now, as Rev. Jeremiah Wright might say, the chickens are coming home to roost. As CEPR documents in a recent paper, Mexico stands to lose an amount equal to 3 percent of their GDP due to the over-reliance on the U.S. export market (bloated to massive deficits), which will now come crashing down thanks to our recession.

Sustainable growth, anyone?

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