NAFTA effects on Mexico essays

NAFTA effects on Mexico essays The North American Free Trade Agreement (NAFTA) has been implemented with the intentions to eventually open the borders between Canada, the United States, and Mexico. This paper will only deal with the effects of the trade agreement on Mexico. This paper will attempt to show that the implementation of NAFTA and its guidelines have increased flows of U.S. foreign direct investment into the country of Mexico, and subsequently improved Mexico s economy. With the United States, Mexico, and Canada signing the North American Free Trade Agreement (NAFTA), the ground rules are set into place to allow Mexico to prosper from inflows of Foreign Direct Investment (FDI). The rules of NAFTA will protect the investments of foreign investors by locking Mexico into NAFTA regulations on direct investing (Krueger 2000). Domestic U.S. firms will be eager to invest in Mexico for a competitive advantage made possible by the NAFTA agreement and Mexicos economic conditions. This paper will discuss how NAFTA helped secure investment from the U.S. into Mexico. Additionally, why domestic U.S. firms would consider FDI into Mexico, and how U.S. FDI may have helped Mexico through its economic crisis in 1995. In order for a domestic firm to undertake foreign direct investment (FDI), they must first be able to compete effectively in their home market. Once the firm obtains a domestic competitive advantage that is strong enough to sustain and compensate for investment damages incurred by investing abroad, the firm can consider FDI (textbook). Once a firm has decided it is ready to directly invest in a foreign market, the firm must decide where to invest. The decision to invest is made by locating markets that may have a comparative advantage, or a market imperfection that would allow the investor to prosper by entering the market. For example, motivating factors of investment include: profits attainable through lower tax rates, more le...