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Volume 63 / Social Sciences

ECONOMICS: MEXICO

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

THE LITERATURE ON THE MEXICAN ECONOMY surveyed in this volume is generally more optimistic than in recent HLAS volumes, perhaps reflecting an expanding economy following the 2001–2002 recession (items #bi2004001509# and #bi2004002760#). Fluctuations in economic activity are often attributed to globalization (items #bi2005005530#, #bi2005005548#, and #bi2005005481#) and Mexico's increased integration into the world economy, with globalization seen in some cases as a threat (item #bi2005005491#), while other studies find that it offers Mexico an opportunity to achieve high sustained rates of exports and job creation.

Increased optimism aside, the fact remains that the economy is hampered by structural weaknesses that limit Mexico's potential for future growth and job creation. Mexico's workers are generally low skilled and have less schooling than workers in advanced industrial societies. This deficit in human capital manifests itself in terms of stagnant labor productivity, low real wages, and the existence of a large "informal" labor sector (item #bi2005005528#) that deprives the education, health care, and social security systems of crucial tax revenues. Income distribution remains highly unequal; approximately one-half of Mexico's population lives in poverty.

Despite recent reforms, public policy continues to impose artificial restraints on the economy's competitiveness and growth potential. Rigid labor and commercial codes discourage hiring and inhibit informal workers from transitioning into the formal economy; the lucrative energy sector, which remains state-owned, suffers from numerous inefficiencies (items #bi2004001604# and #bi2005005503#) and undercapitalized; and the federal government continues to rely heavily on the oil industry for revenues, which consequently renders public budgets vulnerable to cyclical fluctuations in hydrocarbon prices. Revenue instability may also explain some of the deficiencies in the country's infrastructure (item #bi2005005523#).

While the liberalizing reforms associated with NAFTA have been a boom to northern and central Mexico's manufacturing centers, few new jobs have materialized for the predominantly agricultural states in the south and southwest of the country. In addition the assembly industries have not developed extensive linkages with the local economies as in the case of Europe (item #bi2005001038#). As a result, large-scale labor migration to the US has not slowed. As global competition for capital investment has increased—particularly from low-cost manufacturing in Asia—Mexico's status as premier export hub for the North American market has eroded. Some firms, however have found ways of improving productivity and maintaining their competitiveness (item #bi2004002548#). In fact there is a rapidly growing literature outlining ways to improve assembly productivity and competitiveness (items #bi2004002548#, #bi2005005477#, #bi2004002350#, and #bi2005005544#).


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