Study of the Long Term Effect of the North American Free Trade Agreement on theU.S. Investment in Mexico and the Resulting Impact on U.S. Exports to Mexico

摘要

This paper is a study of the dynamic impact of the North American Free TradeAgreement (NAFTA) on U.S. foreign investment to Mexico and the level of U.S. exports to Mexico. A dynamic estimation is an estimation that accounts for decision making over time. The NAFTA decreases risk and leads to a large increase in U.S. investment to Mexico. As this investment increases, the Mexican economy will grow. As Mexicans' income goes up, they will increase their level of imports. Since over 70% of Mexico's imports come from the U.S., U.S. exporters will benefit. The dynamic effect of the NAFTA is estimated in two stages. First, an ordinary least squares regression equation is used to predict the level of U.S. investment under the NAFTA. The estimated value for U.S. investment to Mexico is entered into a computable general equilibrium (CGE) model to estimate the impact Mexico's growth will have on U.S. exports. This study finds that over the long term, the NAFTA is going to lead to a substantial increase in U.S. exports to Mexico. North American Free Trade Agreement, NAFTA, Foreign investment.