Category: Economics Essay

Overtime economic growth has been widespread in most countries. It has increased the dependence of the countries, for they can rely on themselves to sustain their population. The economy is said to have grown if the per capita income of the state increases. The per capita income is determined by the average earning of an individual in a country or a region. The given essay will discuss the economic growth of Mexico and the US.

The mentioned two states have worked together in overtime to develop economically. Following this integration, they have not only built good economic, but also strong cultural ties. Among the rest of the countries in the world, Mexico is the second country alongside Canada, which imports products from the US. Apart from Mexico being a market for US goods, it is also in a manufacturing partnership with it. Their relation became stronger and more profitable after they signed an agreement in 1994. The two nations share an extensive scope of interests, which has made them even closer. The countries have created a wide range of links, both social and economic. The Gulf of Mexico has encouraged trade between the countries due to the easy transportation of goods.

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The countries’ economic growth could easily be determined by their per capita income over time. The per capita income of Mexico was lower than that of the US in 2011. However, this has supplementarily increased, especially for Mexico. The main determinant of the per capita income of Mexico is the United States. It is because the US is the main market for Mexico exports; therefore, if the exports are high, it also positively affects the per capita income, increasing it accordingly. Following the increase in trade between the states, the per capita income for each has grown for the past ten years, considering the period between 2001 and 2011.

In their trade deals, the US is the number one trader for Mexico, while the latter is the second-largest market for the United States. As both countries grew in trade after the agreement in 1994, their imports were mostly dependent on each other. That is why the US mostly imported goods from Mexico, and so did Mexico – imported most of their goods from the US. However, trade between the two countries deteriorated in 2009, caused by the global economic downturn. After this challenge, trade highly increased in the following years.

There were many factors that boosted the increase in trade in the following years. One of the key factors was the energy trade between the two countries. Moreover, crude oil was the main element that increased the trade, since the US imported their crude oil from Mexico. This led to a high increase in imports of refined oil from Mexico by the US.

The reliance of the US as an exporter for Mexico has diminished year by year. It was because Mexico lost the US market as the years passed by. This was also caused by China when it replaced Mexico as the second supplier of the US. Moreover, the United States has also lost its market as Mexico’s top suppliers for their imports to China. In a period of five years, the percentage of Mexico’s imports from the US decreased by 20%.

Though the agreement signed in 1994 could be held accountable for the good progress of the economic growth of the two countries, it was also affected by various factors. Among them was the currency crisis, which Mexico faced in 1995. It caused limited purchasing capability of the Mexicans, and thus, made their resources cheap for buyers. It highly deteriorated trade in Mexico in the following years. It also increased Mexico’s trade deficit by the US. During this time, the US highly grew with the business cycles, which existed in Mexico. These were the two major factors that led to the deterioration of trade.

As it was mentioned above, the trade between the countries deteriorated in 2009, when the amounts of Mexican crude oil to the US decreased. The cutback was mostly caused by the global downturn. After this crisis, Canada replaced Mexico as the major crude oil supplier. Therefore, Mexico became the third supplier, since Saudi Arabia replaced it from the second supplier’s position.

One of the most integral parts of trade between the two countries was the investment, which they referred to as the foreign direct. It was an operation involving one country investing in another, in terms of plants, real estates, as well as retail facilities. The foreigner was to own a percentage of this investment, as per agreement terms between them.

However, the US invested more in Mexico; it was caused by numerous challenges, which Mexico faced. Following the consistent increase of the US investment in Mexico since 1995, Mexico liberalized its restrictions to foreign investors. The provisions of the signed agreement, which protected investors from the country, were the main cause of that move. These provisions were something that gave investors the confidence to invest more. Nonetheless, the provisions were for the benefit of Mexico, as the US investments brought about a series of developments. It was because the US got the confidence to invest more and more due to the agreement of NAFTA in 1995 that kept on being revised about FDI.

The FDI in Mexico is mainly in the form of industries, which has acted as a center of attraction to other investors and brought a lot of profit to the country. The US has widely used the maquiladora industry, which export was oriented for its best benefit. That is why the US uses this industry to get cheap labor force from Mexico, as compared to the production cost.