Reference no: EM132389393

Question

On January 1, 1994 the North American Free Trade Agreement (NAFTA) came into force. This agreement signed by the United States, Mexico and Canada formed a free trade area for goods and services that comprised the three countries.

(1) Many unskilled workers of the United States and Canada strongly opposed this treaty from the beginning of the negotiations in 1990. Using the HeckscherOhlin model discuss which may be the causes underlying their position.

(2) After 25 years most economic analyses indicate that NAFTA has been beneficial to the North American economies and the average citizen. Nevertheless, many Mexican workers still try to move to the United States. Does this go against any of the conclusions of the Heckscher-Ohlin model? (Hint 1: In order to have Factor Price Equalisation, a crucial assumption is that both countries have the same technology. Do USA and Mexico have the same technology? Hint 2: I factor mobility is allowed, factors will move to the country with the highest return)