Globalization in Mexico, Part 1: Economic and Social Effects

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Globalization is a hot topic these days. Mexico, the United States’ controversy-causing southern neighbor and third largest trade partner, has served as the subject in a large-scale experiment on the effects of globalization over the last two decades. Mexico’s role as a globalization “testing ground” is due in large part to the extent to which the country has opened its economy to the rest of the world.

There are many voices on both sides of the globalization argument. Those in favor argue that it raises wages and standards of living, and supports economic growth. Those against say that globalization undercuts traditional labor and lifestyles while increasing wealth inequality. In the first part of this two-part article, the positive and negative effects of globalization in Mexico will be addressed in social and economic terms. Part two will explore the environmental effects of globalization, particularly in northern Mexico.

Globalization in Mexico has had indisputably positive effects on the national economy. In the 1980’s and 1990’s, Mexico loosened its trade restrictions, greatly reduced tariffs, and signed the North American Free Trade Agreement (NAFTA) with the United States and Canada. These actions contributed to the tripling of Mexico’s GDP between 1980 and 1992. The Mexican government has been, for the most part, supportive of trade expansion and development within the country.

Economic growth as a result of globalization in Mexico has certainly benefited Mexican business and industry. But it has not benefited all of the country’s citizens. According to a report by the National Bureau of Economic Research (NBER), Mexican states that have had “high exposure” to globalization, particularly in northern Mexico, fared far better than more rural, less industrialized states in southern Mexico. In fact, in the 1990s, average labor earnings decreased by 10 percent in “low exposure” states relative to “high exposure” states.

How to explain the discrepancy? Well, places that experienced the majority of the impacts of globalization in Mexico fared far better, economically, than those that did not. But states that were not directly affected by globalization, that is, did not reap the economic benefits of development and industrialization, were still affected by government policies, crop prices, environmental disturbances, and much more.

While incomes have traditionally been higher in northern states than in southern states, prior the onset of trade liberalization and globalization, the regions were following a trend of equalization. But globalization put an end to that: the report states, “The process of income convergence came to a halt in 1985, coinciding with the onset of trade liberalization… since 1985, regional incomes have diverged in the country.” As a result of globalization in Mexico, northern states have become wealthier while southern states have become poorer.

The positive effects of globalization in Mexico are, at least so far, limited in their scope. What about globalization’s truly negative effects? There are many, and even those who support free trade can recognize them. NAFTA has severely harmed the majority of Mexican corn farmers, who have been growing corn for thousands of years. Farmers cannot compete with the influx of cheap US-grown corn into Mexican markets, and as a result have experienced income decline, poverty, and forced migration.

The Zapatistas are another example of an isolated but populous group that has been negatively affected by globalization in Mexico. The Zapatistas’ anti-globalization protests have received national and international publicity, while grassroots efforts to maintain their traditional lifestyles and independence from the global economy are met with fear and resistance from globalization advocates, including the Mexican government.

Experts and policy analysts have attributed the wave of Mexican immigrants into the US, both legal and undocumented, to international trade policies. Workers driven out of business by falling prices in their native cities come to the United States looking for work, often only to find employment with the same companies that put them out of business.

In the end, it can be concluded that globalization in Mexico benefits some while harming others. Additionally, free trade and investment do very little, if anything, to directly combat poverty. Unfortunately, the negative consequences of globalization most affect those living in rural, agrarian, and often impoverished communities.

In an ideal world, economic policies would serve to assist the most vulnerable populations, for the benefit of all. But unsustainable systems that increase inequality while undermining effective traditional lifestyles are unlikely to change until global leaders begin to prioritize people over profits.

– Kat Henrichs

Sources: NBER,Forbes
Photo: Flickr

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