This working paper discusses the critical role that higher education in the United States and Mexico must play since the implementation of the North American Free Trade Agreement (NAFTA). The paper gives an overview of recent transformations in areas of economic development and business needs which require that higher education better prepare students to compete in the global workforce. These include changes in the economies of the U.S. and Mexico since World War II, with world leadership for the U.S. and an inward-looking development path for Mexico. The rapid collapse of Mexico's oil economy in 1981 led to a full-scale economic crisis. Higher education institutions in both countries are now responding to new global market challenges. In response to changing business and workforce training needs and advances in educational technology and communications, these institutions are working to implement curricular reform, increase access to higher education, and keep higher education affordable. The paper concludes with initiatives currently underway and gives recommendations for higher education policy makers for the development of a competitive and culturally aware workforce. (Contains 41 references.) (JLS)