Globalization of the economy
The formation of NAFTA reshapes the region

The North American Free Trade Area encompasses a market equivalent in size to that of the European Economic Area. This new common market has a population over 360 million and a GNP of almost US$ 5 trillion.

NAFTA is creating an expansion in intra-regional trade, which in part replaces imports from outside the region, and an increase in the foreign investment by non-NAFTA countries into the region. The formation of NAFTA increased Mexico's access to the U.S. market significantly and to some extent in the Canadian market as well. This raised the level of foreign investment in Mexico considerably, enabling Mexico to grew at much faster pace than before.

Japanese investment in North America grew considerably in the 1980s. Although it has seen a decline in the 1990s, Japanese investments in the U.S. have succeeded in creating ****** new jobs for the North American workers in the United States and Canada over the years. The incorporation of Mexico into the NAFTA market made Mexico a country in which Japanese companies expect to find new opportunities for expansion in the region.

Trade surplus forces NIEs and Japan to invest in other regions

In the latter half of the 1980s, the number of trade disputes stemming from the acute growth in trade imbalances between the Asian NIEs countries and U.S. and Europe increased. The rapid economic growth of the Asian NIEs caused local wages to soar, making this region less competitive than it had been a decade before.

This situation prompted the Asian NIEs to make foreign investments outside the region. Foreign direct investment from Korea, Taiwan, Hong Kong and Singapore grew significantly. Of these four, Korea and Taiwan invested heavily in the United States, while Hong Kong and Singapore increased their direct investment in ASEAN countries such as Thailand and Malaysia.

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