Why isn’t Mexico rich?

Speaking about Latin American country studies, Gordon Hanson has a new NBER paper:

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.

…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.

6 thoughts on “Why isn’t Mexico rich?

  1. I hate to be the house neolib basher but.

    “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…”

    O RLY?

  2. Look at Brazil: You could describe it at the same way:
    poorly functioning credit markets, distortions in the supply of non-traded inputs, and perverse incentives for informality creates a drag on productivity growth.

    But I would add another different external factor: We don’t export most of all products to US.

  3. I see informality more as a consequence than a cause of poor economic performance and some recent works seem to confirm this idea.

    One of the main driving forces behind Mexico’s poor growth performance seem to be poorly developed credit markets. Here the comparison with Brazil is adequate: Mexico’s financial sector has expanded much less than Brazil’s one in the past decade. But I doubt that the explanation for this lack of dinamism comes from the traditional risk of expropriation hypothesis. I would take a closer look at competition and agency costs.

    Bad regulation also seems to be a important source of inefficiency. Many of the potenctial benefits of privatization can vanish if you don’t have proper regulation and that seem to be the Mexican (as well as many other LA countries) story.

    One cannot forget the adverse conditions for Mexican exporting firms. China’s rise has been very good fo the commodities exporters but not so for its competitors like Mexico. This becomes even truer when you consider that the above reasons mean that Mexican firms neither have the capital nor the inputs to invest in efficiency or in new products.

  4. Mexico also trashed its agriculture by joining NAFTA and you need a bouyant agricultural base to grow from!

  5. But Mexico is a rich country!

    That so many of its people are poor, along with the number of Mexican billionaires, indicates a complex web of problems. The default position of Mexico’s rich and its government is to point its poor people North. Once they’re earning money up here, they are supposed to send lots back to Mexico.

    Why do we allow the Mexican elites to get away with this?