An Analysis of Economic Development in
Mexico
Violeta Hernández Espinosa
Economic Development and World Resources
Fall 2006
Outline
*Background:
–
–
–
–
Physical Environment
Sociological Environment
Political Environment
Economic Environment
*Top Three Development
Challenges:
–Poverty
–Income Inequality
* Other Factors Influencing
Development:
–
Stagnant and fluctuating GDP growth rate
–
Concentration of Exports and Export Market
–
FDI, China, and Loss of Competitiveness
–
Weak public financing and dependence on
PEMEX
–
Corruption and Mistrust in Government
* Strategies, Programs, and
Policies
–Employment
* Future Policy Direction
Physical Environment
Location and area:
Physical Environment
•Varied Physical Environment =
Varied Climate
•Cultivatable Land Area: 13%
-Geographic norm: 7.13%
-Income norm: 8.71%
•Desertification:
-60% degraded
-70% vulnerable to desertification
•Rich in natural resources:
-petroleum
-silver
Sociological Environment
• Population:
– Approx. 106 million
– Growth rate: 1.46%
• Geography- 1.44%
• Income-.57%
• High Income-.70%
– Birth rate: 18.8 per 1,000
– Death rate: 4.73 per 1,000
– Dependency Burden: 58%
• Increase, as population
doubles
Sociological Environment
• Highly Urban Society
-76%
•Ethnic Composition
-Mestizo
60%
-Amerindian 30%
-European
9%
• 18% dedicated to Agriculture
-27.9% in 1999
Health and Education
• HDI Index: .821 ~high
– Ranked 53/177
• Literacy Rate Total: 90.95%
– 7% indigenous
• Primary School Enrollment
• Life Expectancy: 75.09
years
• Infant Mortality:
– 22.60/1000 (04), 36.2 (90)
– Great improvement, not
enough: High income 6.12
– 109.21%
• Secondary School Enrollment
–78.83%
• Higher education
-greatest number of higher
education institutions
-22.40% enrollment
Political Environment
• Independence from Spain
1824
• Revolution 1910-1920
• 1910-2000 Rule of PRI
party
– Vote purchasing
– “Rigged” elections
• 2000 National Action
party (PAN) victory~Fox
– PRI ruling Congress
Federal Republic
– 3 branches: executive,
legislative, and judicial
2006 Elections:
• PAN won 2006 by tight margin
of .58% ~Felipe Calderón
-Obrador~ impugned elections
• PAN Congress Majority~1st
time in history, PRD second
Economic Environment
• Economic Freedom: 2.82
Mexico’s GDP per Capita, PPP, 1994-2004
(1-5, 1most free)
12,000.00
• GDP: 676.5 Billion
– Growing at 3%, highly volatile
Current U.S. $
10,000.00
8,000.00
6,000.00
4,000.00
2,000.00
• GDP per Capita, PPP: $9009
0.00
1994
– Highest in the Region
– 30% of high income nations
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Year
Mexico’s Annual GDP growth (%), 1994-2004
• Unemployment: 4%
• Inflation controlled~
6.00
4.00
2.00
Annual %
-- 4% in 2005
8.00
0.00
1994
1995
1996
1997
1998
1999
-2.00
-4.00
-6.00
-8.00
Year
2000
2001
2002
2003
2004
Economic Environment
• BOP stands at –7.4 B (1.09% of GDP)
• Current Account Balance at $ –14.6 B,
• National Debt
- 65% of GDP in 1983  20.5% in (04)
-Debt to Export Ratio: 68.66% (04)
-1982 crisis, dependence on oil
-Major setback in 1994, led to massive devaluation
Mexico’s Balance of Payments, 1999-2004
Year
1999
2000
2001
2002
2003
2004
BOP % of GDP
-2.89
-3.20
-2.84
-2.08
-1.35
-1.09
-13,904,617,472
-18,598,021,120
-17,641,938,944
-13,498,450,944
-8,603,650,048
-7,354,372,096
US $
Top Three Development Challenges
• Poverty
• Inequality
• Unemployment, Underemployment, and the
Informal Sector.
Poverty
• 2005: 50% living at $2/Day PPP
– Estimates as high as 80%
• 20-24% in extreme poverty
• 4/5 of rural population
• Indigenous hardest hit
– 69% extreme poverty
• 5.1 million people
undernourished, 7% under 5years-old
Poverty ~ making it worse
• 1987-2002, 2,955%
increase in basic basket.
• Minimum daily wage rose
651%
• Minimum wage about $4.20,
not applying to the whole
informal sector
Income Inequality
• Gini Coefficient: 49.54
– 38.5 norm income
– 40.8 U.S.A.
• Lowest 20% - 4.31%
• Highest 20% - 55.07
• Top 10% -39.39%
• Poverty vs. 10 billionaires
Income Inequality ~ The Dilemma
Mexico’s Gini Coefficient, 1963-2003
• Growth with inequality
vs. Equality with
Stagnation?
• Before Liberalization
(import-substitution) =
decreasing inequality
“Augmented” Kuznets Curve
• Mexico has entered the
upward-sloping tail of the
Kuznets Curve
Unemployment, Underemployment, Informal Sector
• Holding desired 3.5-4%
unemployment rate.
– Better than late U.S. record
Mexico’s Unemployment Rates, 1995-2006
• What’s the problem?
– No safety net or unemployment
programs
– Underemployment est. at 25%
• 44% of urban jobs and 57% of
non-farm jobs are in informal
sector.
• Unemployment in agricultural sector highest
in 15 years (05)
Migration
• 1994-2004, migration to
USA has increased by
350%
• 1st place in world
remittances, $20 billion
Urban and Rural Population Growth in Mexico, 1790-1995
• Surpassed FDI
by 13%
Other Factors Influencing Development
• Stagnant and fluctuating GDP rate of growth
• Concentration of Exports and Export Market
• FDI, China, and Loss of Competitiveness
• Weak public financing and dependence on PEMEX
• Corruption and Mistrust in Government
Stagnant and fluctuating GDP rate of growth
• Has been under the
desirable over 5% for
developing nations
8.00
6.00
4.00
• Highly volatile
Annual %
2.00
0.00
1994
1995
1996
1997
1998
1999
-2.00
-4.00
-6.00
• Volatility = Inability to
plan, effect on FDI
-8.00
Year
2000
2001
2002
2003
2004
Concentration of Exports and Export Market
Mexico’s Major Export Markets, 2001
• Exports = 30% of GDP
• Commodity Concentration
Ratio: 71%
• Manufacturing exports: 81.7%
of total exports
• Dependant on U.S. growth and
market
– Reserves, debt
Destination of Mexican Exports, by value, 2003 (millions of dollars)
Central America
ALADI
Various South American
Countries & Cuba
USA
Japan
EU
Remember the oil crisis?
“Any excess can hurt you”
2,394
1,504
5,592
146,803
606
FDI, China, and Loss of Competitiveness
• Losing out even with
geographic advantage and
NAFTA
• All time high, in 2001,
$26.8 billion
– 2003, $10.8 Billion
(lowest since 1996)
• From 3rd to 22nd most
attractive investment destination
(04)
• From the end of 2000 to April
2004:
- 1 in 4 maquila enterprises left
Mexico.
- 1 in 3 reportedly relocated to
China.
• Mexico replaced by China as
number one provider of
imports, USA
“Mexico was the last nation to agree to allow China into the WTO”
Weak public financing and dependence on PEMEX
• 10-11% tax Revenue
– 25% U.S. and Japan
– 40% European average
• System that tends to be more
regressive than progressive
– Wealthy able to buy-off officials
• Little or no business taxes
– To increase Investment
– “even after arrival of maquiladoras
20 years ago, Mexico remains largely
impoverished.”
•Pemex:
–20 to 50% of annual government
revenues
–Imposed through various taxes
*Over 90% of profits, accounting
Corruption and Mistrust in Government
• Corruption index: 3.5
– 1-10 scale
• National survey (2001):
– No.1 one reason for lack of
development in Mexico and its
future
– 214 million acts of corruption
in use of public services
– $2.1 billion of “Mordidas”
annually (2.1 billion)
“All of Mexico’s problems have been
because of corruption; if those in the
government wouldn't just take a post
to make themselves rich, Mexico
could be very different. All our money
is in foreign banks and our ex presidents
and their families are enjoying it…while I had
to leave my country in order for us [our
family] to survive. We are all tired; the only
way to change things will be another
revolution, unless people stop stealing and
start doing their job.”
…Alfonso Hdez
Strategies, Programs, and Policies
• Liberalization and Privatization
– Since 1982 crisis, No. 1 way to improving development
– Only Pemex and a part of energy sector state-owned
– Over 90% of Mexico’s trade is under free-trade agreements
• Exports increased 15% since 1994
– Success is mixed
• Oportunidades (Progresa, before 2002)
– Links education, nutrition, and health
– Cash grants
– Success:
• Increased schooling and healthcare
– Tension on supply side
• Empowering women, as large number of participants
• Covers 4/5 families living in extreme poverty, 2.6 million families, 14% of
Mexico’s population
• The cost may be high and tends not to reach the remotest areas
Strategies, Programs, and Policies
• Food programs
– DIF
• School Breakfasts
• Community Kitchens
• Monthly in-kind supports for
pregnant women to under 5
•PROCEDE
–Revision in Mexican constitution,
1992
•Land titling program
•Goals discussed in class
Strategies, Programs, and Policies
• IMSS-Solidaridad
– Coverage for those unable
to pay into the IMSS
– Highly dependent on local
participation
– Success depends on
community
• Mexico 2030 ~ Calderon
– Goals:
•
$30,000 per capita income
• Abolish extreme poverty
• 1 of 5 largest emerging economies
– Sound familiar?
– Waited until after election =
serious?
Success of development~ Economic stats
– Stagnant, volatile GDP
growth
– Growing GDP per Capita
• Highest in LA
–
–
–
–
Low inflation
Improving debt and BOP
Increased trade
Losing out in FDI and
losing competitiveness
– Highly privatized, greater
efficiency and
competitiveness
Success of development~ Social stats
– Education:
• Increasing enrollment in all levels
– Health:
• Infant, Child, and Maternal
mortality greatly decreased.
• Life expectancy improved
• Malaria risk reduced, yet
tuberculosis still a major problem
– Poverty growing and affecting
over 50% of population
– High inequality that threatens to
keep rising
– Great unemployment figures, but also
great underemployment
– A mix of 3 factors has led to alarming
emigration
– Environmental degradation continues at
increasing rates
Future Policy Direction
• Competitiveness:
– Mexico must continue to move to more complex industrial production activities
and services to offset lost manufacturing that is flowing to China and Central
America.
– Find new markets, especially those of emerging markets, less dependence on U.S.
– Mexico needs tax, energy, and labor reforms that will add attractiveness to Mexico,
in order to increase the now stagnant GDP growth.
• Tax system:
– Modify system to undercut its current regressive nature, improving inequality
– PEMEX must be held accountable, increase efficiency, and government must lessen
reliance on it.
• Human Capital
– Focus has been on targeted policies, such as the transfers and direct help we saw.
– Mexico will need to move to broader policy  education, health, social security,
job training and opportunity
– Clarify strategy and plan for those emigrating the country and remesas.
• How can we use this inflow of money to an advantage for the long run
Future Policy Direction
• Corruption, corruption, corruption
– New laws must be put in place and enforced
– Unless corruption decreases, little progress is likely.
– Greater penalties
• Mexico’s 2030
– Raise GDP, but how will ensure equal distribution of gains?
– Future Policy must include processes and means of getting people out of poverty,
distributing the wealth equally, and focusing on what people really need– a job.
– Greater opportunity for Mexico’s young and college graduates
– Take the increasing population seriously
•
If the U.S. wants to stop immigration, then this might be an opportunity for
them to help Mexico with the pressing issues.
If not… like many people are saying in Mexico, people are desperate and hungry;
a REVOLUTION might become the answer, even if not the most affective. What
do Mexicans have to lose at the point of starvation?
QUESTIONS …