Photo: Esparta PalmaThat’s the question asked by U.C.-San Diego economist Gordon H. Hanson in a new working paper (abstract here; PDF here). From the abstract:
Over the last three decades, Mexico has aggressively reformed its economy, opening to foreign trade and investment, achieving fiscal discipline, and privatizing state-owned enterprises. Despite these efforts, the country’s economic growth has been lackluster, trailing that of many other developing nations. In this paper, I review arguments for why Mexico hasn’t sustained higher rates of economic growth. The most prominent suggest that some combination of poorly functioning credit markets, distortions in the supply of non-traded inputs, and perverse incentives for informality creates a drag on productivity growth. These are factors internal to Mexico. One possible external factor is that the country has the bad luck of exporting goods that China sells, rather than goods that China buys. I assess evidence from recent literature on these arguments and suggest directions for future research.
And, in case you were wondering, here’s an important footnote:
The growth of the drug trade may distort GDP figures for Mexico. It is likely that value added in cultivating and exporting marijuana and opium, manufacturing and exporting methamphetamine, and distributing cocaine from South America to the United States is not fully represented in the country’s national income accounts.
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The government appears to be losing control of the country. Just in this week alone, the town of Cuidad Mier has been abandoned due to attacks by rival gangs. The army is outgunned. Convoys of heavily armed narcos ride around with impunity. And you wonder why Mexico is poor? Mexico is rapidly turning into Afghanistan, yet Obama never seems to glance over his shoulder.
Did he consider the possibility that free trade and privatization are not the boon to economies that the IMF and World Bank pretend them to be?
It’s not that Mexico is poor, it’s just that Mexico hasn’t seen spectacular growth like other transitioning countries such as China or Brazil. Even then, I always argue that you can have moderate growth over a long period of time, or large growth, over a short period of time. For countries such as Brazil and China, I think the latter applies more correctly. China has experienced 10%+ growth, while Brazil 7%+, and both are already beginning to show signs of slowing growth. Mexico on the other hand has experienced around 3-4% average growth in the past decade, while in Brazil and China the growth has been more sporadic. I’m playing this off logic but it seems maintaining moderate growth, is much more easily maintainable than high growth rates. I wouldn’t be surprised if Mexico maintains 3-4% avg. growth over the next decade, while Brazil and China’s growth slow to Mexico’s current rates by 2020. It is also much easier to do business in Mexico than it is in either China or Brazil. Mexico, along with Argentina, have the lowest income inequality rates in Latin America, while the region’s so-called best performer, Chile, has the highest income inequality along with Brazil. Income inequality in Mexico and Argentina is generally on par with that of the United States. I also always emphasize to people that Mexico is not poor. It is actually very rich by international standards. The problem is that they have one of the world’s richest countries right next door. Mexico has also done a very excellent job of reducing poverty and creating public safety nets. Poverty has dropped from 40% of the population in 1995, to just over 18% now in 2010. If this trend keeps up, by 2017 Mexico’s poverty rate will be right on target with the US poverty rates. My hope is that by 2020, we can add Argentina, Chile, Mexico and Uruguay to the list of “Developed Countries”. I’m thinking this will be the case since Uruguay, Chile and Mexico recently broke the $10,000 GDP Per capita (Nominal) rates, which is generally the hardest obstacle to overcome to graduate into the highest economic classification available.
This is an easy one:
Lack of birth control.
Lack of protection for private property rights (investors flee to safer countries).
Too much spending on security.
Too many illegals straining services (ironic, but true, as central americans flee north).
Kind of surprised you missed this one.
Some of the most successful colonies which became first-world wealthy owe a lot to the English system of colonies, compared to let’s say the French, Spanish, Italian, Dutch, Portuguese. or Russian.
America, Canada, Australia, South Africa and India are a lot better off former colonies compared to Haiti(Fr), Congo(Fr), Algeria(Fr), Mexico(Sp), Paraguay(Sp) Dominican Republic(Sp), Eritrea & Somalia(It), Indonesia(Dutch), Mozambique & Angola(Portug), Belaurus & Uzbekishtan(Russia).
Mexico may have inherited a Spanish system of government and commerce that was less competitive than the English system. A ‘Manana Culture’ instead of a ambitious pragmatic culture.
In contrast, the Chinese, like the Jews, have a diaspora of people forming a private network of commerce integrated into local communities instead of a national colonial effort. There is no Jewish empire and no Chinese empire. But there are hundreds of China towns in South Asia, Africa and South America.
I agree with Drill-Baby in that culture has more influence on Mexico’s success than most people are willing to admit. You have to ask why hasn’t there been a revolution in Mexico to overthrow the government and implement the changes needed to push Mexico into the 21st century. Apparently it’s easier to blame the Narcotrafficantes, the U.S. and other entities than step up to the pump and fix their country.
Stephen J. Dubner is certainly short on facts which should have been added.
Approximately 2 years ago the equivalent min. hourly wage was $4.29. Approximately 50% of Mexican residents work at this level or less.
Isn’t there about ten families that own Mexico and aren’t they very monopolistic? Not much competition is allowed when it comes up against the monopolies.
In the late 90′s Mexico was beginning to have economic problems and paying their debt. Advisers from the USA informed them to slowly reduce the value of the peso.
What they did was criminal to the working people of Mexico. Those in the know converted their peso holdings into dollars and then floated the peso, which almost crashed putting millions of Mexicans out of work. Then those who responsible reconverted their dollars into peso’s and increased their holdings in Mexico.
The birth rate in Mexico is very high and the death rate is very low pitting more and more Mexicans against each other in competition for the measly resources available for 50% or more of the Mexican population.
Another problem is machismo and no birth control which is a contributing factor in continual poverty, corruption, and even health problems.
The Catholic Church with their stance on no birth control or abortions has doomed over approximately 50% of the Mexican people to a miserable existence.If they could only limit their birth rates their lives would improve.
One thing I must say about the Mexican people is that they are alive and full of life, even though life is harsh to them. The drug cartel wars have only made the problem worse for many of the Mexican citizenry
I grew up in Guadalajara, Mexico. I have to say that Mexico isn’t rich because it’s citizens are not free. Mexico was governed by a single party for 60 or so years, and the entire country was organized to enrich those in power.
There is no credit, there is no economic opportunity in Mexico for those not born to wealth. There is also significant discrimination against the lower class in Mexico, and I believe that it is virtually impossible for one to move from one economic class to another. Add to that the pervasive corruption of the bureaucracy and you have a toxic stew of not good.
The guy who cuts my lawn in the US is from Mexico and he doesn’t read. But he has a thriving business with at least $500,000 in assets, his own house and most important, all of his kids are going to college. This cannot happen in Mexico.
@tomob
The lack of incentives and flow of trade are what is holding Mexico back. Thy produce the same goods as China which does them no good in the competetive market. i think they need to find new exports to produce, so that they don’t find themselves competing so greatl with other countires.