David R. Henderson  

Mexico's Economic Growth

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In the United States, the image of Mexico is abysmal and largely wrong. The average American seems to believe that Mexico is a destitute, quasi-socialist nation with rampant drug violence that is sending waves of illegal immigrants to the United States.
This is from Ivan Eland, "The U.S. Should Take Lessons from Mexico," June 20, 2012.

I found that first paragraph arresting. I realized that I'm one of those average Americans. But Eland goes on:

More important, the bad publicity on the drug death toll has unnecessarily dispirited even Mexicans and eclipsed Mexico's economic success story. Brazil, billed as an engine for Latin American economic growth, has also overshadowed the equally middle-income Mexico. Yet in 2011, the relatively open Mexican economy, which has increased competitiveness, outgrew its Brazilian counterpart, dominated by large state-owned industries, 3.9% to 2.7% and is expected to maintain that gap in 2012. Whereas Brazil, like the United States, has debt-burdened consumers, Mexico has had manageable debt, low inflation, 17 years of macroeconomic tranquility, and thus investors in the automobile, aerospace, and electronics sectors banging down the door to get into the country.

Mexico's most-recent annual growth rate (the chart doesn't make clear, but I think it's in real terms) is 4.6 percent. Not bad.

Mexico's rating on the Economic Freedom scale? 75th. That accords with my prior views. Which makes its growth rate somewhat surprising.


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COMMENTS (13 to date)
Joe Cushing writes:

There are lots of American companies operating in Mexico. Why go all the way to China when Mexico is right there? To put it in perspective our 4 largest trading partners and amount of trade in billions of dollars found on Wikipedia are as follows: Canada 597.4, China 503.2, Mexico 460.6, and Japan 195. You can see Trade with mexico is nearly as large as China and after mexico on the list, all other countries have far less trade with us. China gets so much press for how much trade they have with us wile there is basically no press about Mexico or Canada for that matter. Of course China probably sells a lot more in Europe than mexico does and I doubt we buy oil from China---of course speaking of oil--according to the press we get all of our oil from warring Muslims instead of Canadians and Mexicans.

Brandon Berg writes:

Is that particularly good, for a country sharing a border and having a free trade agreement with a very large nation having roughly four times its per-capita GDP?

David R. Henderson writes:

@Brandon Berg,
Yes. That makes it even more impressive. Imports tend to be highly income-sensitive. With income in the U.S. growing slowly, that’s quite a feat.

Steve Sailer writes:

But but but Mexicans are starving and that's why we have to let them illegally immigrate!

Next you'll be telling us that Mexico is the most overweight and second most obese country on Earth.

Steve Sailer writes:

"The U.S. Should Take Lessons from Mexico,"

You mean, like export your poor and don't import poor people from south of the border?

Alex writes:

"You mean, like export your poor and don't import poor people from south of the border?"

Mexican immigration law has substantially liberalized since 2008. The punishment for unauthorized immigration in Mexico fell from a maximum 10 years in prison to a maximum fine of $461 and most detainees are taken to detention centers and deported on buses. The government has also increased the number of work visas.

Collin writes:

No surprise here. Why Meixco did not take off years ago is a fair question as well? Why now:

1) Mexico is in prime demographic period of working ages. (Most BRICs are here, US was 80 -90s and Japan 70 - 80s.) Births have fallen to replacement level and country is not aging too much yet. That changes next decade.

2) The government has more stable despite its problems.

3) Economic question: Does the growth of organize crime signal econimic growth. It sort of a 'wrong' export strategy but it functionally works the same. Also it is increasing the wages of the lower classes who are spending more money. US organize crime had a strong hold of the US economy from 1920 - 1980ish with dimishing returns since then. Not that I recommending this as growth strategy but it seem to functionally work this way. Have their ever been such economic papers and how did booze legalization in 1933 have a positive effect on the US economy.

Being from Cali it is obvious Mexico is growing greatly as the flow of illegal aliens is clearly diminished the last 5 years.

As a Mexican, I am not certain that the US should take lessons from Mexico. But certainly I am appalled by the bad reputation we have in the US.

On a trip to Europe, I was impressed by the anti-americanism I found so widespread, someone told me american products are left on the shelves in stores, simply because they are american!.

That is not so in Mexico, where we have a tradition welcoming americans, in fact approximately one and a half million americans have chosen to live in Mexico. There are thousands of american companies and Mexicans buy american products, a lot, I learned that mexicans buy more than 10 percent of all american exports.

Mexico has done some things right in the past years, we have not grown as fast as Brazil did for the last decade, but as opposed to Brazil, which grew thanks to commodities like soy beans and other, our more moderate growth was fueled by high-value manufactured exports, like plasma tvs, cars, aircraft parts, all kinds of machinery and electronics that american, european, asian and mexican companies produce here in Mexico.

I think the conditions that pushed millions of mexicans to seek opportunities north of our border are no longer there, ours is now an industrialized nation and our own big cities are attracting the people who used to leave the country. I have also noticed a lot of people who came back from the US, interesting as it may seem, the do long for the better salaries they used to earn in the US, but they prefer to live with their families, friends, in their own country, there are also americans everywhere, working and living with us, I think they feel just like back home.

Brazil, Argentina, Uruguay and other south american nations are betting hard on China, but their relationship with that country spells troubles ahead, China's investments in south american are oriented to primary products, they want to take raw materials and are dumping cheap cars and electronics in exchange, already Brazil is showing a dangerous commodity dependence on its trade exchange with China, and Soy beans represent 25 percent of Argentinian exports to the world.

Already more than a third of all manufactured goods coming out of latinamerica are from Mexico, we are no longer a commodity country, thanks to NAFTA and thanks to sound industrial and economic policies.

Ben Powell writes:

David,
The literature shows that changes in Freedom are as important or more important than levels of freedom when explaining economic growth. Mexico improved it's EFW score from a low of 4.91 in 1985 to a high of 7.0 by 2005. Slight backsliding to 6.75 since then. But this big improvement while having a low level can square your two observations.

Simon writes:

The same economic freedom scale shows China in 92nd place.

David R. Henderson writes:

@Ben Powell,
That makes sense. Thanks.

David R. Henderson writes:

@Jose Angel Flores,
Good comment. Thanks.
@Simon,
Good point.

Jan Bouda writes:

David,

Mexico had very slow gdp growth between 2000-2010, it was because our country started to implement saving policies and efficient cash and reserve management. Our GDP was considered luckluster, but we maintained macroeconomic stability even though the recent crisis in 2008 up to now is affecting even our country. Our government didn´t implement wasting cash policy which has led to excessive debt in US, Australia and all the European Union. Our way was modest but it started to pay-off now since 2010. Now our country has better economic perspectives than any other G-20 country, low inflation and higher growth. In some multinational companies whose subsidiaries are in Europe, Asia, US, Canada and Southern America the only growth recorded comes from Mexico. Another situation that emerges is that producing in Mexico starts to be cheaper than in China due to high transportation costs in the supply chain. The proximity between Mexico and US is a great advantage.

The banking industry makes the highest yield in Mexico per country - more than in USA or Europe. The spanish banks aren`t that affected by Spanish crisis thanks to their market share in Mexico. The situation has turned in favor of Mexico, there is another factor - there is expected a huge influx of foreign investment from debt strangled countries such as Spain, Portugal, Italy, France, UK and Germany into Mexico. New companies are opening their doors every day in Mexico and it has just started. Our currency has one advantage that it remains flexible unlike US dollar, euro or Japanese Yen and Chinese Yuan which are affected by the crisis and became too much high than they really should have been.

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