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Volume 61 / Social Sciences

ECONOMICS: MEXICO


ROBERT E. LOONEY, Professor of National Security Affairs, Naval Postgraduate School


THE LITERATURE ON THE MEXICAN ECONOMY surveyed here is generally more optimistic than in previous HLAS volumes, although the most recent writings reflect on the country's current (2001–2002) downturn. Through fast and sustained growth following the 1994–95 financial crisis, Mexico made solid progress in combating poverty, and many of the devastating social effects of the 1994–95 crisis are now a part of history (item #bi2001006287#). Increasingly, longer-run assessments of the country's future prospects display optimism (item #bi2001006271#).

From 1994–96, the share of population in poverty (defined as having a level of per capita consumption below that necessary to meet basic food and nonfood needs) at the national level drastically increased from 51 to 62 percent (item #bi2001006270#). Since 1996, however, there has been an impressive turnaround, with the share of the population in poverty in 2000 having declined to 46 percent. The share of population in extreme poverty (defined as unable to meet basic foods needs) has also fallen dramatically. Poverty, and especially extreme poverty, remain much higher in rural (item #bi2001006285#) than in urban areas, but both urban and rural poverty levels are now below the 1994 precrisis levels.

Mexico's achievements in poverty reduction and development, however, are overshadowed by four persistent difficulties: 1) although reduced, absolute poverty numbers remain unacceptably high (some 45 million Mexicans are still poor); 2) there is sharp inequality in the distribution of income, which seems immune to the growth process (item #bi2001006274#) and so far resilient to poverty interventions (item #bi2001002796#) (Mexico's is one of the most unequal economies in Latin America; 3) the incidence of extreme poverty in rural areas is abnormally acute (in 2000 almost one in every two Mexicans living in rural areas was extremely poor; and 4) there is a widening development gap between the southern region (item #bi2001006338#) and the rest of Mexico (Southerners are far poorer, less educated, less likely to have running water, and more likely to die younger).

These characteristics take on an additional urgency when considering available employment opportunities for the poor (item #bi2001006282#). While formal unemployment has remained low, the creation of around one million new jobs is necessary to absorb new entrants to the labor force (at the peak of its recent growth performance, the Mexican economy managed to create only about 600,000 such jobs).

Both the achievements and the remaining challenges in reducing poverty and inequality (and creating jobs) point to a new agenda for Mexico's development—one that combines the effect of a solid macroeconomic framework and sustained growth with micro interventions by sector and region in order to bring the benefits of economic growth to all Mexicans. This comprehensive agenda—with its macro-micro links—can be organized around five challenges that are embedded in the country's 2001–06 National Development Plan: consolidating the macroeconomic gains of recent years; accelerating growth through competitiveness; developing the stock of human capital; balancing growth and poverty reduction with environmental protection; and building an efficient, accountable, and transparent government.

Building on earlier neoliberal reforms (item #bi2001006303#), Mexico's macro framework (item #bi2001000335#) has outlined three pillars since the financial crisis of 1994: a tight and independent monetary policy, a flexible foreign exchange regime, and a conservative fiscal stance. This arrangement not only helped the economy out of its crisis, but also delivered a respectable rate of growth, single-digit inflation, a viable external balance, a comfortable debt position, and three investment-grade sovereign credit ratings, all despite several major international crises (item #bi2001006352#) that dampened economic prospects worldwide (East Asia in 1997, Russia in 1998, Brazil in 1999, and Argentina in 2001).

The need and means of increasing Mexico's competitiveness (item #bi2001006293#) in international markets is a topic increasingly addressed in the literature (items #bi2001006286# and #bi2001006331#). In the past, Mexican governments sought to foster growth by bolstering aggregate domestic demand, the result of which was the end of short-lived growth spurts due to balance of payments crises (item #bi2001006285#). Today, with the country already integrated in and enjoying the benefits of the global economy, particularly in NAFTA (item #bi2001006307#), long-term growth acceleration will be sustainable only if achieved through an economy-wide enhancement in competitiveness. This plan must encompass both export-oriented (item #bi2001006323#) firms (which in Mexico tend to be large formal corporations), and those catering to the domestic market (which are usually smaller or informal). A number of factors contribute to a country's competitiveness, and four main challenges stand out for Mexico: enhancing the quality of its physical infrastructure (item #bi2001006339#) and transport (item #bi2001006353#); broadening financial sector reform (items #bi2001006269# and #bi2001006349#); raising agricultural productivity (item #bi2001006268#); and integrating small and microenterprises into the modern economy (items #bi2002004387# and #bi2001006344#).

The economic literature has increasingly focused on human capital issues in Mexico, especially health and education (item #bi2001006362#). Access to primary education is universal, secondary enrollment is high and continues to increase, and per capital educational expenditure has expanded. These accomplishments provide a good transition stone to a modern dynamic economy. Even though building and protecting human capital is the key to reducing poverty, human capital does not necessarily reduce poverty (item #bi 00005986#). The poor need to be able to earn income with that capital. The link between human capital formation and actual poverty reduction is the labor market (items #bi2002004388# and #bi2001006364#). It is therefore a serious concern that the legal and regulatory framework (item #bi2001006296#) for Mexico's labor market is outdated (part of it dates back to 1917) and constitutes an impediment for workers, especially poor workers, in an increasingly globalized economy (item #bi2002004383#). Finally the challenge of human capital formation is particularly difficult for three, overlapping social groups—women (items #bi2001006289#, #bi2002004365#, and #bi2001006295#), indigenous populations, and the rural poor (item #bi2001006345#).

Historically Mexico's economic growth relied in great part on the mining of natural resources (item #bi2001006346#) and, in the absence of a coherent approach to environmental protection, has contributed significantly to polluting the environment (item #bi2002004396#). Such degradation has now become a binding constraint to Mexico's external competitiveness, and to its ability to access new markets, attract foreign investments, and further develop its tourism industry. In other words, at the current rate of environmental degradation, growth—and hence poverty reduction—may no longer be sustainable (item #bi2001006325#).

Finally, the literature coming from many of the provincial centers has improved considerably over the years. Many state universities have publishing programs that rival those in Mexico City. A representative sample of this research includes: Aguascalientes (items #bi2001006316#, #bi2001006351#, and #bi2002004376#), Zacatecas (items #bi2001006314#, #bi2001006312#, and #bi2001006297#), Puebla (items #bi2001006291# and #bi2001006348#), Sinaloa (items #bi2001006309#, #bi2001006318#, #bi2001006324#, and #bi2002004385#), Nuevo León (items #bi2001006275# and #bi2002004382#), Yucatán (item #bi2001006301#), Tabasco (item #bi2001006360#), Querétaro (item #bi2002004364#), Sonora (items #bi2001006343# and #bi2001006342#), Jalisco (items #bi2001006298# and #bi2001006363#), Chihuahua (item #bi2001006321#), Baja California (item #bi2001006350#), México (item #bi2001006340#), and Tamaulipas (item #bi2002004371#).


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