NAFTA has been good for the Mexican economy, but Mexico has not reached its potential because of domestic political shortcomings, according to a World Bank study released Wednesday, reports The Miami Herald.

Mexico’s economic gains since the signing of the North American Free Trade agreement in 1994 with the US and Canada will not be enough to close the development gap with its northern partners in the long term unless the country makes more investments in education, innovation and infrastructure, the report said. „NAFTA has had positive effects in Mexico, but they could have been better,“ said David de Ferranti, World Bank vice president for Latin America and the Caribbean. „Free trade definitely brings new economic opportunities, but the lessons from NAFTA for other countries negotiating with the US are that free trade alone is not enough without significant policy and institutional reforms.“

Daniel Lederman, co-author of the report, titled Lessons from NAFTA for Latin American and Caribbean Countries, argues that Mexico would be poorer if NAFTA had not been implemented. „Without NAFTA, global exports would have been roughly 25 percent lower and foreign direct investment around 40 percent less,“ Lederman told the Herald in a telephone interview from Washington. The report also says NAFTA has sped up the transfer of US technological know-how to Mexican manufacturers, created more and better jobs, and helped reduce poverty. Yet, 10 years after the signing of NAFTA, the treaty has not drastically reduced poverty in Mexico. Some 40 percent of Mexicans continue to live under the poverty line, the study added.

Reuters notes the report said that while Mexico made major economic gains under NAFTA, it would have done even better if it had invested more in education, innovation and infrastructure. The report also noted Mexico failed to implement institution-building reforms, like improving accountability, reducing corruption and making sure that its laws and regulations were adequately enforced. On agriculture, often a big sticking point in trade talks, the World Bank concluded that Mexico’s farm sector performed well during the 1990s, but that smaller growers had little access to the thriving export market.

The Financial Times notes that although the World Bank found little conclusive evidence that freer trade with the US and Canada had raised Mexican wage levels, it said it had not reduced the number or quality of jobs nor devastated the country’s agriculture, as NAFTA critics claim. The report will be widely seen as a rebuttal of complaints by anti-globalization activists in the US and elsewhere in the western hemisphere that the agreement has damaged Mexico’s prosperity, agriculture and environment. It coincides with increased interest in the western hemisphere and Asia in preferential trade agreements, after the failure of the WTO’s Cancun meeting in September.

The Associated Press, Dow Jones, and The New York Times online note that the main lesson of the study, its authors said, is that a free trade agreement is not a substitute for a development strategy, but is a single element in a broader development framework. „NAFTA definitely further plugged Mexico into the most dynamic economy in the world but the country’s development across the 1990s, including the NAFTA period was unequal,“ said Guillermo Perry, the bank’s chief economist for Latin America and the Caribbean. The report notes some unequal effects from the agreement, including that northern and central states grew faster in the 1990s, modestly reducing income gaps with the area around Mexico City, while poorer southern states grew slower because of low levels of education, infrastructure and quality of local institutions. Lederman said „when comparing levels of innovation and technological progress we found that Mexico not only lags behind its NAFTA trading partners but is lagging behind the typical country with Mexico’s economic characteristics.“ He said Mexico trails countries that seem to be outstanding in terms of their level of investment in research and development such as South Korea and even China and India.

The Washington Times notes that not all studies agree with the World Bank findings. The Carnegie Endowment for International Peace earlier this month said NAFTA has not enabled the Mexican economy to keep pace with growing demand for jobs, has not led to higher wages and has not slowed immigration to the United States, the report said. Poor people living in the countryside have been hardest hit, the Carnegie report pointed out.