Economic Analysis of Mexico

International Trade As An Explanation for Differentials in Per Capita Gross Domestic Product in Mexico and the United States

The basic model of international trade is structured around the concept of comparative advantage. The theory of comparative advantage holds that mutually advantageous trade between countries will always be available, because trade patterns will be based on relative prices, as opposed to absolute prices, which is based on the theory of absolute advantage, wherein mutually advantageous trade between countries might not always be possible (Walther, 1997). The reasoning behind the theory of comparative advantage is that no single country can have comparative advantage in all commodities. Initially, the theory was based on labor-cost differentials. In the 1990s, it is recognized that both supply and demand factors are at work in the determination of relative prices which establish a basis for a mutually advantageous exchange between countries. In spite of significant changes in economic thought since the eighteenth century, the theor

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that in the maquiladoras was US$ 5,900. The NAFTA Early in 1990, the governments of both Mexico and the United States began to speak openly and favorably toward the idea of free trade between the two countries. Almost immediately, the Canadian government indicated that any free trade agreement between Mexico and the United States would affect Canada, and, thus, Canada should be a party in any free trade discussions between Mexico and the United States (Krugman, 1993). In 1992, negotiators from Canada, Mexico, and the United States finished work on the NAFTA, and late in that year the Presidents of Mexico and the United States and the Prime Minister of Canada signed the NAFTA. The agreement was ultimately ratified by the legislative branches of government in all three countries, to become effective on 1 January 1994. Under the NAFTA, virtually all trade barriers between the three countries will be eliminated by 2003, creating a single, unified North American market of 360 million persons. The political fight in the United States over the NAFTA ratification was bitter and divisive. Opponents of the free trade agreement contended that American jobs and industries would be lost, workers would lose protections built into Amer
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Approximate Word count = 3714
Approximate Pages = 15 (250 words per page)

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