Effects Of The North American Free Trade Agreement On Corn...

The Effects of the North American Free Trade Agreement on Corn Trade between the United States and Mexico Prerna Gait ID: 4299385 ECON 3951 – Senior Project Abstract: This paper examines the impact of the North American Free Trade Agreement (NAFTA) on corn trade between US and Mexico since 1994. NAFTA had a great impact on corn trade between US and Mexico mainly because of trade liberalization which enabled US to increase its corn exports to Mexico. This paper closely looks at how the implementation of NAFTA and the United States corn subsidies led to a decrease in the Mexican corn prices, which further led to the out-migration of people working in the Mexican agriculture sector to the urban sector. Introduction: On†¦show more content†¦Essential ideas: As mentioned earlier, the biggest motivation for NAFTA’s existence was to promote trade liberalization and prosperity by creating a free trade zone between US, Mexico, and Canada. Agriculture sector was the most affected by NAFTA’s implementation, propelling small-scale Mexican farmers to compete against large-scale US farmers. US corn subsidies led to the Mexican markets being flooded with cheap and unsubsidized corn which lead to the displacement of Mexican agricultural population to the cities. The US Mexico corn trade demonstrates how trade and migration can be complements instead of substitutes if the main reason for trade is differences in technology. According to the Heckscher-Ohlin model, the relationship between trade and migration is that of the substitution type due to the Factor-price equalization theorem. (Samelson, 1948) However, what we observe in this paper is that corn trade contrasted with this trade theory. â€Å"In standard Heckscher-Ohlin trade th eory, capital-rich country will impose labor-intensive goods from labor-rich country S. Trade liberalization shifts additional production of labor-intensive goods from labor-rich country S and capital-intensive goods to country N. These production shifts inturn put upward pressure on country S wages, discouraging emigration† (NAFTA Revisited: Achievements and Challenges, 1997). Effects of NAFTA: NAFTA had a huge