The paper analyzes certain crucial aspects like, effect of NAFTA (North American Free Trade Agreement) on the Mexican economy after 13-15 years of its advent and benefits enjoyed by the participants as a result of economic integration. By analyzing the effects of NAFTA, the paper attempts to test the validity of economic theories on international trade. While there are some profuse criticism of NAFTA on either side of the border, it is found that the improvement of labor conditions, in terms of more jobs and a higher wage rate in Mexico, is a significant gain from NAFTA. The paper consists of data analysis and uses some prior theoretical arguments such as that of Factor Price Equalization.

The NAFTA (North American Free Trade Agreement) is a subject of unique interest for academic discussion as it is the first historical experiment of its kind, that initiated economic integration of a developing country (Mexico) with the developed partners (Canada and the US). Thus, it is a fascinating experiment to observe and evaluate for economic, political and social analysts alike.

This paper, uses NAFTA as a tool to test the validity of economic theories on international trade. The paper briefly exposes the basic elements of the theories, then states the expectations that can be made about the impact of free trade on the economy of a "small country" like Mexico. Finally, the actual effects of the agreement on the Mexican economy against the backdrop of these expectations, have been discussed, with the intent to prove, or disprove, the theories.More specifically, the anticipated theoretical benefits of free trade and Jacob Viner's "Theory of the Second Best", have been discussed. This constitutes a theoretical basis for the foundation of predictions made in this study. Then these predictions are checked against the actual performance of Mexico's economy in terms of different economic parameters of relevance, including trade volumes, per capita GDP, employment and real wages.

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