Globalization in Mexico

The topic of globalization has been a popular one among social scientists for several years. Debates have raged over the years regarding the economic benefits of a more integrated global economy, with some saying there is a significant benefit to incomes and production, particularly in developing countries, whereas others believe that globalization has led to the downfall of some regional economies. This is a pertinent argument in the country of Mexico. Ever since the rise of trade liberalization in Mexico, arguments have persisted over whether globalization has had a positive or negative effect on the country. In this paper I will analyze the available data and determine just how globalization has affected Mexican society.

On January 1, 1994, the North American Free Trade Agreement (NAFTA) came into effect, which eliminated tariffs on goods being imported and exported between Canada, the United States, and Mexico. Although Mexico had opened up bilateral trade agreements in the mid-eighties (Chiquiar, 2008), nothing compared to the size and scope of NAFTA. Since then, Mexico has instituted one of the most open trade policies in the world, including enacting eleven free-trade agreements with a total of 46 countries.

For a developing nation like Mexico, the benefits of free trade seem clear. By opening up new markets around the world to Mexican goods, a cascade effect of higher consumption would lead to higher profits, eventually trickling down to workers, meaning higher wages, and a better quality of life. That’s the theory espoused by pro-globalization advocates anyway, but what does the data say more than 20 years later? Well, it depends on where you look.

As Esparza et al. (2004) points out, the positive effects of globalization have been seen primarily in the northern regions of the country, particularly along the US-Mexico border. This phenomenon is largely attributed to two things: NAFTA, and the Border Industrialization Program (BIP). BIP was enacted in 1965 to help alleviate severe unemployment in the northern areas by allowing American companies to build plants in border cities and employ Mexican workers. When NAFTA was enacted in 1994, it further bolstered the northern section of the country, and even added additional provisions such as environmental regulations and employment standards.

This economic migration to the north has allowed certain cities to prosper, whilst others are left behind (Hanson, 2004). Wage inequality has grown since globalization has taken a stronger hold on the Mexican economy. In fact, one could even argue that globalization has had a direct influence on the country’s income disparity, as Hanson (2004) points out that in the 15 years prior to Mexico’s foray into the global market, the poorer areas in the south began to close the wage gap with the north. However, since 1985, this trend has reversed greatly and per capita GDP numbers have heavily favoured the north.

Globalization has also led to a transition of sorts for the Mexican economy. Ever since Mexico entered the global market, there has been a greater need for skilled, white-collar positions, rather than the traditional unskilled labor jobs . As such, this has increased the wage gap in Mexico, particularly the gender wage gap. A 2010 study by Dominguez-Villalobos and Brown-Grossman revealed that women in Mexico are more likely to be employed in assembly factories, and are disproportionately affected by globalization. These export-heavy sectors are often ripe for worker-exploitation, and this leads to a huge impact on the gender wage-gap.

But sticking with the export-sector, it’s not all bad in Mexico. Through the openness that globalization has established, it has been found that foreign investment in Mexico has had a positive impact on wages. Moreover, it was shown that foreign-owned export-driven companies typically pay workers higher wages, offer more fringe benefits, and often drive up the pay of workers at domestic organizations in the same sector. However, there is a flip side here. While foreign companies do pay workers more than their domestic counterparts, they also negatively affect income inequality. On the whole, it is found that foreign companies pay their white-collar workers exponentially more than their blue-collar, front-line personnel. This contributes to the growing wage inequality that is harming the economy.

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It’s clear that globalization has a real-world impact on the Mexican economy. As Chiquiar (2008) points out, these impacts are due in large-part to NAFTA. It is argued that NAFTA has contributed greatly to the regional wage gap between the north and the south. Hanson (2004) also affirms this finding, as his study finds that northern states, especially those closest to the US border, have greater wage growth than southern states. This unevenness has, in effect, led to the formation of two different Mexico’s, the rich north and the poor south.

Moreover, since the NAFTA enaction in the 90’s, disposable income levels have risen disproportionately for the wealthy. In fact, as tariffs were lifted in the 90’s, wealthy households saw their disposable income increase by 6%, while poorer households only saw their income go up by 2%. This was especially true of communities near the American border, where “tariff-induced” changes in prices were larger.

Perhaps one issue not often thought of when discussing globalization, is the effect it may have on public health. Between 1980 and 2012, Mexico’s obesity rate skyrocketed from 10% to a whopping 35%, putting it behind only the United States in obesity rates among OECD countries. Given that food imports from the United States into Mexico has grown substantially over the past 2 decades, not to mention the higher incomes among much of the Mexican population, the demand for more processed food has grown in correlation with Mexican waistlines.

At present, approximately 29% of the Mexican population is considered obese. Moreover, in a twenty-three year period between 1989 and 2012, “food preparation” imports from the US to Mexico has increased twenty-three-fold. Furthermore, as Giuntella et al (2018) points out, the obesity epidemic has shown to affect women more due to lower rates of education. It is hypothesized that the growing availability and low-cost of these US imported foods has changed consumer tastes has led to a shift to unhealthy diets. The astounding affect of this export of obesity, is shown with an estimated increase of 1 million obese females in Mexico between 1989 and 2012.

When looking at the overall impact that globalization has had on Mexico, it’s tough to determine for sure whether its been a net positive or negative. When analyzing the research, you can make compelling arguments for both sides of the argument. Since the mid-1980s, and even more so since the 90’s, Mexico’s economy has grown. There’s a large segment of the population that has seen their incomes increase, and quality of life increase as well. This is particularly true of areas closer to the American border. However, moving further south, the picture isn’t so rosy. Poverty rates are higher, and income inequality is significant. The benefits of the global economy have unevenly affected Mexicans. Even in the better off areas, income inequality is an issue. The increase in foreign investment in these areas has led to exponential wage growth for workers, but significantly higher wages for white-collar workers, increasing the monetary chasm between the classes.

As mentioned earlier, the better economic conditions have had an adverse effect on the nation’s health, obesity rates have increased immensely since Mexico entered the global economy. The availability and affordability of processed foods imported from the United States, has led to a gradual shift in the country’s diet, making Mexico the second most obese country in the OCED.

There’s no denying that globalization has had a positive effect on Mexico in many ways. However, it would be unwise to ignore the negative trends that have developed as well. The rising income inequality coupled with the obesity epidemic should be enough to make policymakers take notice and hopefully make some changes, particularly as these are huge problems facing women. But as we’ve seen in other countries, if a system benefits those at the top at the expense of those at the bottom, chances are nothing with change.