Volume 43, Number 170,
July-September 2012
Economic Growth and Industrial Policy in Mexico
Cuauhtémoc Calderón and Isaac Sánchez

The problem of slow economic growth in Mexico has been the subject of numerous interpretations, some of which are discussed below with the aim of highlighting the contribution of this research.

For Guillén (2000) the main cause of stagnation lies in the dominant neoliberal policies, which follow the Washington Consensus word for word, without taking the peculiarities and challenges of the Mexican economy into account. In his opinion, these policies are pro-cyclical in nature, and far from correcting the problem of a slow growth momentum, end up worsening it. Following a similar line of argument, Calva (2001) considers that the cause of the problem lies in the Mexican economy’s dependence on the u. s. economy’s cycle, in addition to the recurring macroeconomic strategy applied in Mexico since Salinas’ time that made the stabilization of prices a priority objective.

Fuji (2000) on the other hand, concludes that the basic cause of stagnation lies in the external sector. In the last 25 years, every phase of growth has systematically generated a deficit in the current account balance, which is ultimately impossible to finance with incoming capital. The high elasticity of imports, a traditional feature of the economy, grew as a result of openness to trade. This was due to the fact that industrialization by import substitution led to a considerable industrial base, but to a large extent one that could not compete with imported products, and survived because it was protected. The rapid withdrawal of this protection did not put the majority of industrial firms in a position to face new market conditions. Thus imported products took over the consumption goods market and in particular the intermediary market and that of capital goods. This situation weakened the links between branches of manufacturing, so that growth in industry had increasingly more direct and disproportional repercussions on manufacturing imports. This occurred both in export sectors as well as those directed to the domestic market. Huerta (2004) believes there is not sufficient domestic financing for growth and external flows are reduced when conditions for returns in the economy are not offered. To this, restrictive monetary and fiscal policies can be added. According to Perrotini (2004) the regime of insufficient productive investment prevalent since the external debt crisis, adjustment policies, macroeconomic stabilization and structural change, combined with the institutional voids in the Mexican economy, brought about a macroeconomic environment adverse to productive investment and, therefore, a reduction in the accumulation rate of capital. The resulting loss of employment and output is the inevitable counterpart of the success of anti-inflationary policies.

Through an orthodox focus, Martínez et al. (2004) conclude that liberalization and growth have generated greater growth and investment. However, the lack of structural reforms and prolonged lack of credit have created bottle necks blocking further growth and have led to the recent slowed growth of exports.

On his part, Villarreal (2005) believes that having exhausted the model of industrialization by import substitution, the government implemented a model of Openness, Liberalization, Privatization and Stabilization (alpes in Spanish), that together with real appreciated exchange rate and contractionary policies exacerbated the external disequilibrium of the Mexican economy, pushing down the economic growth rate.

Ros (2008) maintains that the determinant of slow growth in the Mexican economy is the low investment rate, which is limited by four factors: reduced public investment, an appreciated real exchange rate since 1990, the dismantling of industrial policy during the reform period and the lack of financial banking. Ibarra (2008) backs this hypothesis maintaining that a slowdown in growth is due to a downturn in investment, as a consequence of an overvalued real exchange rate during disinflation, aggravated by the long term reduction in the gdp/ capital relationship.

De María and Campos et al (2009) affirm, based on exhaustive statistical-historical analysis, that the prevailing stagnation reflects the low average investment and employment rates in the national economy and in the production sector in particular, as well as the performance of various key policies including fiscal, monetary, exchange rate, financial and openness to foreign entry, within the framework of a model that facilitates macroeconomic stability and fiscal equilibrium. It also reflects the absence of strategies and appropriate policies in the sectorial and regional spheres (agricultural, manufacturing and services).

For Esquivel (2010), establishing codes of conduct and behavior in macroeconomic policy has helped to reduce macroeconomic volatility and instability, but at the cost of reduced growth. The Mexican economy’s link with the North American economy, as well as the pro-cyclical monetary and fiscal policies, mean that production growth is not subject to external factors. Owing to this, he suggests that economic policy be more active and that the strong industrial relationship between Mexico and the u.s.a. be reduced.

Finally, Hanson (2010) considers that slow economic growth is the result of a combination of internal and external factors. Among the first, he points out the existence of poorly functioning credit markets, distortion in the supply of non-commercial inputs internationally and incentives to informality. On an external level he believes the country has “bad luck” exporting goods that China sells, instead of goods that China buys.9

9 Literature was essentially revised in national journals, but the interested reader can find a review of international literature in Kehoe and Ruhl (2010), explaining the instability and stagnation of the Mexican economy after opening up. The majority of international authors agree that inefficient financial institutions are the cause of slow growth, as well as a weak rule of law and rigidity in the labor market.

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PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 195 October-December 2018 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
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