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4. The NAFTA was expected to reduce migration from Mexico into the United States because

a. The NAFTA was expected to raise wages in Mexico, reducing the incentive for migration.

b. The NAFTA would reduce the movement of vehicles across the border in which illegal migrants could hide.

c. The NAFTA agreement included a provision for increased enforcement of migration restrictions at the border.

d. The NAFTA was expected to reduce American wages below Mexican wages, causing migration to flow into Mexico instead of into the U.S.

 

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Raushan Raj
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Related questions

Mexico's automobile industry is booming. Bolstered by $19 billion in new investment from foreign carmakers, including Nissan, Honda, Volkswagen, and Mazda, vehicle production doubled between 2009 and 2014 to an estimated 3.2 million vehicles. This investment surge has transformed Mexico into the eighth-largest automaker in the world, and it's not over yet. In 2014 and 2015, Toyota, Mercedes-Benz, Hyundai-Kia, BMW, and Volkswagen all outlined plans to build new state-of-the-art factories in Mexico. Audi is also constructing a $1.3 billion factory that is slated for producing luxury sport-utility vehicles. The Audi factory is scheduled to open in 2016. Taken together, these new factories represent another $20 billion in investment that will push Mexico past Brazil and South Korea to become the sixth-largest car producer in the world by 2020 with an annual output of 4.7 million vehicles (for comparison, the U.S. industry makes some 11.5 million autos a year). The initial stimulus for the dramatic growth of the Mexican auto industry was the establishment of the North American Free Trade Agreement (NAFTA) in 1994. Prior to NAFTA, Mexico's auto industry was small and protected from foreign competition by high tariff barriers. Car prices in Mexico were two to three times higher than in the United States. Not only were cars in Mexico more expensive, exporting or importing cars and parts was also very tough. Shipments got delayed at the border and were difficult to move around because of poor infrastructure, which is a major problem in an industry in which tight logistics is critical. NAFTA removed most tariff and nontariff barriers to trade between Mexico, the United States, and Canada. This initially led to a flood of low-priced auto imports into Mexico from the United States, but it also gave auto manufacturers based in Mexico duty-free access to the large U.S. market next door. With labor costs in Mexico just a fraction of those in the United States, auto manufacturers now had to consider Mexico when planning new plants to serve the North American market. Mexico's shift to free trade didn't stop with NAFTA. Mexico spent much of the 2000s hammering out free trade deals with over 40 other countries, including the 28 states of the European Union, Japan, and Brazil. These deals give auto factories based in Mexico duty-free access to markets that contain 60 percent of the world's economic output, and they have helped transform Mexico into the fourth-largest auto exporter in the world. Eighty percent of the cars now produced in Mexico are exported to other countries, two-thirds of them to the United States. This unprecedented network of regional trade agreements has given Mexico an important edge when it comes to attracting new investment. For example, when BMW ships cars to Europe from its 20-year-old plant in South Carolina, it is hit with a 10 percent import duty. For a $50,000 car, that amounts to $5,000, which is a much bigger factor than differences in labor costs. A factory in Mexico can supply both the U.S. and the EU markets with duty-free automobiles. This was a major factor behind BMWs 2014 decision to build a new factory in central Mexico rather than the United States, far outweighing the $500 a car labor cost advantage that Mexico currently enjoys over the United States. The new BMW factory will supply the U.S. and EU markets, as well as Latin America. Indeed, because of differences in trade barriers, a car exported from the United States to Brazil costs 55 percent more than one exported from Mexico. As Mexico's auto industry has grown, auto-part suppliers have also followed manufacturers to Mexico. The large auto parts supplier Delphi, for example, has 30 factories in Mexico and generates revenues of $3 billion in the country. Employment at Delphi's facilities doubled to 24,000 between 2007 and 2014. Infrastructure has also improved dramatically, and customs clearance at the border is now quick and efficient. All of this bodes well for the future of the Mexican auto industry. However, not everyone is happy with what has happened. Some argue that growth in Mexico has come at the expense of factories in the United States, which has had a negative impact on employment growth in the U.S. auto industry. When BMW decided to build a factory in central Mexico, for example, it meant that it would not be expanding its South Carolina plant. The South Carolina plant will continue to operate, and no plants have been closed as a result of the growth of production in Mexico, but it is true that new plants are increasingly being located south of the border. Sources: Joann Muller, America's Car Capital Will Soon Be... Mexico,€ Forbes, July 20, 2014; Dudley Althaus and William Boston, Trade Pacts Give Mexico an Edge,” The Wall Street Journal, March 18, 2015; Sonari Glinton, How NAFTA Drove the Auto Industry South, National Public Radio, December 8, 2013; Serena Maria Daniels, Twenty Years after NAFTA, a Mini Detroit Rises in Mexico,” Bridge, September 25, 2014. CASE DISCUSSION QUESTIONS

1. What was the initial impact of NAFTA on the U.S. and Mexican automobile markets? Who benefited most from this?

2. How did the impact of NAFTA start to change location decisions by automobile manufacturers over the years? How did this start to impact automobile production in Mexico and the United States?

3. Mexico has been very proactive in signing regional free trade deals in addition to NAFTA. How has this strategy impacted automobile consumers and producers in Mexico? How has it impacted automobile consumers and producers in the United States?

4. What lessons can United States policymakers draw from the growing success of the Mexican automobile industry that can be applied to future free trade deals, such as the deal currently being negotiated between the United States and the European Union?

1. Professor Gordon Hanson has a favorable view of illegal immigration because

Select one:

a. illegal immigration responds to the forces of the free market.

b. legal immigration is determined by a bureaucratic process which does not necessarily respond quickly to market forces.

c. spouses and children of skilled legal immigrants (who come with them) may not have marketable skills - so the case for legal immigration is weakened.

d. all of the above.

2. Gordon Hanson calculates gain/loss due to Mexican migration to the United States. He shows that because of Mexican migration to the United States:

Select one:

a. Original American workers lose 65% of US GDP.

b. Original American workers lose 1% of US GDP.

c. World income goes up by about 1.2% of US GDP.

d. Mexican wages fall by 0.03% of US GDP.

3. The Bracero Program refers to a temporary work visa program which is no longer in place. Under the program a large number of mostly Mexican farm workers could come and work in the Unirted States.

Select one:

True

False

4. This question may require some research. The US-Mexico Bracero Program was eventually opposed by:

Select one:

a. President Ronald Reagan.

b. Governor Rick Perry of Texas.

c. Cesar Chavez.

d. US Employers.

5. Which of the following is likely to contradict Samuel Huntington's idea that Mexican migrants to the US may not have an "Americano dream?"

Select one:

a. Mexican-American consumption pattern is not too different from the consumption pattern of rest of America.

b. Mexican immigrants who come from Mexican villages take longer to assimilate, but the educated Mexican immigrants assimilate readily.

c. Latinos are quite adept at climbing out of poverty. Sixty-eight percent of those who have been in this country 30 years, own their own homes.

d. A large number of Mexican-Americans join the US Army.

e. All of the above.

6. Which of the following would be called "Distributive Coalition" that prevents free entry and thereby creates deadweight losses?

Select one:

a. Racism

b. Casteism

c. Religious Fundamentalism

d. All of the above.

7. Which of the following events created a large number of refugees to the United States?

Select one:

a. The North Korean Famine of 1996

b. The Irish Potato Famine 1845-1850

c. The Chinese Famine 1958-1962

d. The Sudan Famine 1998

8. Approximately how many people in the world die every hour from hunger, malnutrition and starvation?

Select one:

a. 36

b. 3600

c. 3.6

d. 1000

9. According to Michael Clemens, World GDP would increase by 50% or more if inter-country immigration restrictions were removed.

Select one:

True

False

10. What is the current status of Senate Bill S. 744 (113th US Congress of 2013 - 2014) also known as Border Security, Economic Opportunity, and Immigration Modernization Act?

Select one:

a. It failed in the US Senate

b. It failed in the US House of Representatives.

c. Although the S 744 passed in 2013, it has not yet been introduced in the House of Representatives.

d. The bill was passed by the US Congress, but President Obama vetoed it.

11. In a country called George-David (named after George Borjas and David Card), the labor demand curve is given by: W = K – 4L

where W is the wage rate, K is a variable determined by capital stock in the country, and L is the labor force in the country.

K is created by capitalists and capitalists always convert 10 percent of their income to add to the stock of K (assume there is no depreciation).

Example: In this period if K is 60 and in this period, capitalists’ income is 100, in the next period, the value of K will be (old K + 10% of capitalists’ income in this period) = (60 + 0.10*100) = 70.

**

Suppose in period 1. K = 50 and the labor supply is 10. What is the capitalists' income in period 1?

Select one:

a. 200

b. 100

c. 300

d. None of the above.

12. Refer to the question above, What are capitalists' incomes in the next three periods? (Period 2, Period 3 and Period 4) in this country if labor supply remains the same at 10?

Select one:

a. 200, 210, 220

b. 200, 200, 200

c. 100, 200, 300

d. None of the above.

13. Refer to the question above. Show how the wages change in the next three periods (Period 2, Period 3 and Period 4) in this country if labor supply remains the same at 10.

Select one:

a. 10, 10, 10

b. 10, 20, 30

c. 30, 50, 70

14. Refer to the question above. What are the incomes of the capitalists’ in the next three periods (Period 2, Period 3 and Period 4) in this country if an immigration takes place and labor supply becomes 11 beginning Period 2?

Select one:

a. 200, 240, 280

b. 242, 242, 242

c. 202, 234, 256

d. None of the above.

15. Refer to the question above. What are the wage rates in Period 2, Period 3 and Period 4 in this country if an immigration takes place and labor supply becomes 11 beginning Period 2?

Select one:

a. 10, 10, 10

b. 10, 15, 20

c. 20, 23, 27

d. 25, 28, 31

e. None of the above.

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