The NAFTA Effect -- Mexico's Unfulfilled Dream

Abstract : Implemented almost 18 years ago, the North American Free Trade Agreement (NAFTA) spurred great trade activity and promised rapid economic convergence among its three signatories: Mexico, Canada, and the United States. But hampered by insufficient policy and institutional reforms, Mexico's impressive trade and foreign investment performance did not translate into corresponding, equal developmental improvements. This paper examines Mexico's top foreign trading partner, the United States, in association with its most important and influential trade policy, NAFTA. As its main objective, this analysis will explore what industrial reform policies might have allowed Mexico to take advantage of the full potential of NAFTA as envisioned. A secondary objective is to focus on deficient government industrial policies of the past and their debilitating effects on Mexico's industries. This exploration of industry reforms will center on innovation, productivity, competition, and regulation. Finally, the paper presents recommendations for further consideration by the Mexican government and the U.S. Northern Command (USNORTHCOM).