U.s Investment In Mexico

U.S Investment in Mexico

Economics 580

Dr. Leon

Haitham Boukhadour

Fall 96

Mexico has established itself as one of the biggest emerging markets in the world today. It has exhibited many of the signs of a high growth economy, offering several advantages to prospective investors. Some highlights of the

Mexican economy include " single-digit inflation, a balanced public budget, real economic growth (presently at a rate of 12 percent), a deregulated economy and a favorable investment climate" (Risk Management/ June 94, P.32). Mexico also possesses a strategic geographic location as a gate way to Latin American markets. Mexico is among the fastest- growing export markets for the United

States. In 1985, Mexico became the third largest market for total U.S. exports, behind Canada and Japan. In 1992, Mexico surpassed Japan as the second largest export market for U.S. manufactured goods. Mexico now accounts for $1 out of every $10 of total U.S. exports.

After the passing of NAFTA, bilateral trade was quite balanced in 1994, with the U.S. registering a surplus of $1.3 billion, virtually unchanged from

1993. However, there was a sharp increase in trade opportunities, as both import and export growth exceeded 20 percent. One-fifth of the total trade that occurs between the United States and Mexico was created in 1994.

One of the major sectors that holds a large promise for the U.S. manufacturers is that of the automobile industry. The Mexican market for auto parts is expected to grow by 24 percent from 1994 levels to $16.9 billion in the year 2000. It is also expected that NAFTA will help increase the U.S. export share of the Mexican market to around 70 percent by the year 2000. In the long run, Mexico's location could profit the U.S. industries that establish themselves there, through an expanded free trade area in Latin America, which could include Argentina, Brazil, Venezuela, and Chile. Such expansion could prove crucial to the U.S. industry, as a strong export orientation helped sustain industry growth. Exports increased from 18.5 percent of total output in

1989 to 27.2 percent in 1991. And the level of employment which could be attributed to exports increased from 116,500 in 1989 to 154,200 in 1991.

Mexico also offers some intriguing possibilities in terms of production facilities for U.S. based firms. In 1994 alone Mexican car and truck production totaled 1.173 million units, up 8.6 percent from 1993. The Mexican government had along term plan in terms of automobile production in Mexico, and it is in a phase now that favors foreign investors and exportation out of the Mexican market. Check the figure bellow to see how the plan has progressed so far.