Volume 45 Number 178,
July-September 2014
The Primary Sector and Economic Stagnation in Mexico
Moritz Cruz and Mayrén Polanco*
Date received: February 10, 2014. Date accepted: April 11, 2014
Abstract

As is widely known, a primary sector consistently able to generate a production surplus is indispensable for sustained economic growth. The stagnation that began in Mexico in the 1980s has been characterized by the poor performance of the primary sector, among other elements. It is therefore interesting to explore the role this sector has played in stagnation. This work examines this topic using data for the time period 1970-2012 and some econometric techniques. The results suggest that the primary sector has made a negative contribution to economic growth, while primary sector performance has aggravated limitations on growth imposed by the current growth model.

Keywords: Mexico, primary sector, economic growth, economic development, growth rate.
INTRODUCTION

There is a clear consensus in literature on economic growth and development that the primary sector has a consistently positive effect on economic growth.1 In other words, the primary sector always makes a positive contribution to economic growth. Recent studies that have provided empirical evidence for this argument include works by Tiffin and Irz (2006), Yao (2000), Gollin et al. (2002) and Henley (2012).

The primary sector contributes in various ways – in general, through factorial services, currency, the market and production – and the weights of these different facets evolve as economic development advances. Thus, in the early stages, primary sector contribution is not only greater, but also crucial to economic success. In fact, in these phases, the primary sector is the foundation upon which the industrial sector can grow and become stronger, eventually becoming the new motor of economic growth (see Kaldor, 1966, 1989). Later, in more mature phases of industrialization, the primary sector makes a smaller contribution to economic success. However, in this stage and later stages, it will continue to make a positive and strategic contribution, mainly through the product and currencies. Moreover, starting at a certain stage of industrialization, we can expect that the primary sector will receive resources from the rest of the economy, through subsidies and other fiscal incentives, aiming to maintain the productive surpluses that will continue to contribute to economic growth. The continuous expansion of the primary sector is therefore crucial to achieving and sustaining dynamic growth.

With this in mind, many nations that have adopted the so-called export led growth model starting in the 1980s emphasized its anti-rural bias (Bezemer and Headey, 2008). As a result, their economic growth has stagnated.2 That is, against all economic logic, these economies left their primary sectors to chance, which significantly reduced agricultural policy in the midst of rapid opening to international competition, and in many cases, modifying agricultural legislation, which led to the concentration of land in the hands of the few. These measures aimed to increase agricultural productivity, driven by greater profitability.

It is worthwhile to analyze the Mexican economy, which adopted the export-led growth model after the 1982 debt crisis, and has been characterized by poor economic growth alongside a stagnated primary sector.3 Is it possible that this economic performance was also linked to primary sector stagnation? This work aims to investigate this idea, based on the hypothesis that the primary sector has stopped contributing to economic growth. To prove this hypothesis, we will proceed in two ways. First, through a merely descriptive analysis to understand how the primary sector has contributed to economic growth. Second, following work by Yao (2000) to identify the type of relationship the primary sector has maintained with the rest of productive sectors in the long term to verify the descriptive analysis. We believe that this exercise will be relevant, because if the hypotheses is proven, there will be a greater need to include support regardless of the primary sector in a growth strategy as a sine qua non condition for its success.

After the introduction, this work contains two additional sections. The first briefly describes the mechanisms by which the productive sector promotes economic growth. The second presents descriptive evidence regarding the role of the primary sector in the Mexican economy in the last third of the previous century. This section also introduces and discusses the outcome of our econometric estimates, which determined the contribution of the primary sector to economic growth in the time period 1970-2012. The final section contains some conclusions.

HOW THE PRIMARY SECTOR HAS CONTRIBUTED

This section aims to provide a brief overview of the mechanisms by which the primary sector contributes to economic growth. Before going into detail, it must be noted that as the economy goes through more advanced stages of industrialization, it is expected that this contribution will decrease. In this context, it is relevant to mention that although the primary sector’s contribution to growth in early stages of development tends to happen “naturally,” due to the importance of the sector in the economy (both in terms of the product and employment), in later stages, when its size is reduced, this contribution is only positive as long as this sector remains supported by the rest of the economy; in other words, as long as the mechanisms – read active agricultural policy – to continue generating a surplus are in place.

Although diverse, the channels through which an economy contributes to economic growth can generally be grouped into four categories: factorial services, currency, the market and production (see, for example, Adelman, 1984; Yao, 2000; Thirlwal, 2003; Moreno-Brid and Ros, 2009; Calva, 2012).4 Factorial contributions refer to all productive factors that the primary sector frees up or produces for the rest of the productive sectors. For example, when labor is abundant, it is feasible for the primary sector to free up or transfer labor at a low cost, and not necessarily to the detriment of its productivity (Lewis, 1954). At the same time, it produces the raw materials that, in early stages of industrialization, are basic for nascent enterprises. On the other hand, the primary sector is a source of financial resources (especially through mandatory saving) to provide solvency to various investment projects. In this context, we must not forget that between primary and industrial goods, the primary sector also contributes financing for investment in other sectors.

However, the primary sector also contributes to economic growth through currency, which helps finance import requirements for the overall economy, especially capital goods. We must also keep in mind the contribution of the primary sector to growth through the balance of payments. The mechanism is rather simple: the positive commercial balance of the primary sector contributes to the overall (positive or negative) commercial balance, thereby alleviating any restriction on growth though the balance of payments. This is by no means a trivial contribution, as growth restrictions due to the balance of payments have been one of the most pressing issues faced by developing economies in recent decades (McCombie and Thirlwall, 2004).

Another contribution is through the market for industrial production, especially in earlier stages of industrialization. On the one hand, primary sector workers constitute the natural market, which initially consumes the production of the industrial sector. On the other, the growing productivity of the productive sector tends to be anchored on improved supplies provided by the industrial sector, thereby generating strong productive chains that impact the growth dynamics of the industrial sector. In summary, the primary market forms the foundation for industrial takeoff. Thanks to the primary sector, the industrial, and by extension the manufacturing sector, in particular, become the motors of economic growth (Kaldor, 1966).5 In other words, without the initial contribution of the primary sector, it is virtually impossible to advance to later stages of industrialization.

Finally, the primary sector provides the food required by the population, which, as its income grows, will demand increasing quantities and varieties of food (Huang and Bouis, 2001). An economy’s capacity to satisfy the demand for food is undoubtedly relevant, as it implies, among other fundamental aspects, avoiding food dependency and potentially inflationary spirals with well-known negative consequences on other economic variables (such as the real exchange rate) and internal growth limitations (Cruz et al., 2011).

As an overview, the primary sector’s contribution to economic growth, especially during the early stages of industrialization, is both enormous and fundamental to economic success. Of course, as mentioned earlier, as industrialization advances, the contribution of the primary sector falls in quantity, but not in importance. For example, a continuously growing primary sector (at least in production terms) can satisfy the domestic food demand and also export the surplus of production. This translates into a contribution to growth through currency and production.

Now, it must be noted that all of the benefits enumerated here are derived from the assumption that primary sector productivity is, on average, growing (meaning that the transition from traditional agriculture to highly mechanized agriculture using improved supplies has been made), translating into a production surplus (which is exported or which frees up labor). As any successful country will show, this surplus is only permanently accessible when the government provides its support to the sector through various mechanisms which, taken together, are known as agricultural policy. These policies may encompass everything from subsidies to price guarantees, not to mention support for research, access to credit and insurance, infrastructure development, etc. In this sense, a constantly booming primary sector – which essentially rests on the supply of better inputs and applying new knowledge and modern technology (Thirlwall, 2003: 204) – and its consequent contribution to growth, will depend on active agricultural policy.

As should be expected, given the aforementioned, dismantling agricultural policy will lead to economic stagnation and/or stronger limitations on economic growth. This is true regardless of the economic model that has been adopted (import substitution or export-led growth).

ECONOMIC STAGNATION AND THE PRIMARY SECTOR: EVIDENCE FROM 1970-2012

At the beginning of the 1980s, with the advent of the debt crisis, the Mexico economy left behind four decades of economic success (1940-1980), to begin adopting an export-led growth model, a phase marked by economic instability and stagnation, which has now lasted for over three decades.

During the period of economic success, with an import substitution model, the primary sector experienced prosperity. According to Calva (2012: 69) “[…] the agricultural GDP […] grew at an average annual rate of 5.5% between 1939-1941 and 1964-1966, while the agricultural, livestock, forestry and fishery GDP grew at an annual rate of 4.6% in the same time period.” In fact, from 1940-1957, the primary GDP grew at an annual average rate of 7%, practically the same rate as the rest of the economy (which in those years was merely agricultural and driven by the primary sector), While from 1959 to 1981, the agricultural and livestock GDP grew below the aggregate6 (Gómez-Oliver, 1996), driven by industrial dynamics (Moreno-Brid and Ros, 2009).

Thanks to the dynamics of the primary sector, the overall economy could therefore make sustained advances towards industrialization. That is, during the period of economic success, the primary sector contributed significantly to economic growth through the paths described in the above section. For example, the primary sector’s contribution through factorial aspects to the overall economy from 1940-1960 translated into 2 to 3% of total fixed investments during this period (Eckstein, 1968; Moreno-Brid and Ros, 2009). Likewise, agricultural growth was the primary source of currency to cover capital imports, satisfied the growing domestic demand for goods, provided the raw materials demanded by nascent industry and freed up abundant labor for the rest of the productive sectors (Calva, 2012: 84-85).

Of course, this was not merely fortuitous. It was the result of agricultural policy that included tools to promote certain economic sectors, that is, construction of public infrastructure, technology research and transfer, preferential credit and agricultural and livestock insurance supported by public resources, subsidies for agricultural supplies and a price guarantee system (Calva, 2012: 68-69: and 1988). From 1934 to 1950, for example, public investment channeled towards agriculture grew in real terms by an annual average of 7%, and from 1957 to 1981, grew at an annual average rate above 10%. Moreover, the subsidies given to the sector grew at an annual rate of 12.5% between 1970 and 1981, eventually accounting for 20% of agricultural GDP and nearly 2% of aggregate (Gómez-Oliver, 1996).

Contrarily, and for many reasons,7 the launch of the export-led growth model at the beginning of the 1980s was notable for its anti-rural bias, further8 dismantling agricultural policy. Consequently, the agricultural product began to fall even faster than it had been since the mid-1960s, mainly due to decreased investment in the sector because it was no longer as profitable (Calva, 2012; Gómez-Oliver, 1996). Similarly, from 1970 to 2011, the primary GDP grew at an annual average rate of about 2%, far below the standards recorded (and described above) during the stage of economic success. In fact, as shown in Figure 1, the primary sector saw a downward growth trend since the beginning of the 1960s (with slight recovery in those years) through to the 1980s. Later on, we see a spike that quickly stagnates and lasts until the end of the 1990s, to then begin its decline and finally a moderate recovery.

Figure 1. The Growth Rate and Trends of the Primary Sector, 1971-2011

Source: Prepared by the authors using United Nations databases (available at: unstats.un.org).

In terms of the dismantling of agricultural policy, Table 1 clearly illustrates the extent to which one of the most important elements of this policy, official credit, was abruptly reduced. Looking at column 3, it appears that official credit for the sector has seen a general downward trend since 1980, which never recovered to the levels at the beginning of the analysis. The information in Table 1 is also indicative of the fact that the main source of credit for the sector began to derive from commercial banks. However, only from 1990 to 1994 was there any sustained increase in this type of credit.9

Another relevant indicator of the dismantling of agricultural policy is reflected in decreased subsidies, one of the pillars of this policy. Effectively, starting with the 1982 crisis, both subsidies and expenditures on agricultural promotion fell by at least half, following a markedly downward trend. By 1987, total agricultural subsidies added up to less than a half percentage point of total GDP. In this environment, public spending allocated to agriculture fell rapidly from 12% in 1980 to 9.6% in 1983 and to less than 6% by 1989 (Gómez-Oliver, 1996) (see Table 2).

The final blow to the disappearance of agricultural policy, and the consequent stagnation of the primary sector, was dealt by the unilateral and rapid commercial opening to which the Mexican economy was subject starting in the mid-1980s, topped off with the signing and entry into force of the Free Trade Agreement with the United States and Canada at the beginning of the 1990s. In this environment, price guarantees and supports were suppressed, leading to losses both in the sector’s profitability and in the purchasing power of rural producers (Calva, 2012).

Given this background, it is unsurprising that the contribution of the primary sector would no longer contribute positively to growth, and that the growth restrictions imposed by the export-led model would only be aggravated. One example of this can be observed in how the commercial balance of the overall economy evolved as compared to the primary sector (see Figure 2). This figure reveals that the agricultural commercial balance has essentially been a deficit since the mid-1960s. The economic implications of this situation are undoubtedly negative, and it is worthwhile to enumerate them here. On the one hand, currency exchanges have made no contribution to covering import requirements, which has led to greater external indebtedness and the reduction of international reserves. Both options, as the empirical evidence has shown, are not viable in the long term. Moreover, the recent economic crises Mexico has faced have been linked to unsustainable external deficits.

 

Figure 2. Total and Agricultural Commercial Balance, 1970-2011 (Millions of Dollars)

Source: ECLAC Statistics (available at: estadistical.cepal.org).

 

On the other hand, but also related to the previous point, is the fact that the agricultural commercial deficit has contributed to the deficit of total current accounts, which means that restrictions on growth imposed by the external sector have not been mitigated. In light of these circumstances, a recent study by Cruz et al. (2011) ascertained that given the food dependency of the Mexican economy, it would be feasible to activate domestic restrictions on growth by exerting upward pressure on inflation derived from structural origins. This inflationary pressure could be autonomous, resulting from the growth in international food prices, or endogenous, in the case of very dynamic economic growth. Regardless of its nature, the authors point out that structural inflation could, on the one hand, incentivize the monetary authorities to put the brakes on economic growth or, on the other, negatively impact the real exchange rate by appreciating it, the result of decreased commercial competitiveness, aggravating the external deficit. In summary, the absence of a primary sector surplus has accentuated, through diverse means, mechanisms with an adverse impact on the Mexican economy, while also no longer providing a positive contribution to economic growth.

Another mechanism by which the primary sector contributes to economic growth is through the demand for industrial goods. This is particularly true when the income of primary sector employees grows and when there is high overall employment in the sector. In this sense, it is unsurprising that the agricultural sector is no longer an important source of demand, given the abrupt drop in dynamic aggregate economic growth beginning in 1982 (Gómez-Oliver, 1996). In other words, job loss and reduced purchasing power, which began in 1982, has led to a contraction in demand for industrial products (which has also had a negative effect on demand for primary raw materials) and food (this is an unexpected phenomenon given the low income elasticity of primary products). We cannot forget that the primary sector still accounts for a high number of employees – since the beginning of 1980, the share of the primary sector in overall employment has fallen slowly, reaching around 14% by 2012 – and as such, reduced income in the sector has undoubtedly affected overall demand. The fact that demand has contracted since the mid-1980s has led to a precipitous drop in the share of the primary sector in total GDP, going from 10.6% of GDP in 1986 to fluctuate around 3.5% by the end of the 1990s. In accounting terms, the primary sector’s contribution to growth is generally marginal, on occasion reaching two-tenths of a percentage point starting in the 1980s (see Table 3).

In light of this evidence, it is clear that the primary sector in Mexico not only has stopped contributing to economic development, but that restrictions on growth have also been accentuated, as a result of the export-led model. The rest of this section aims to depict how the primary sector is related to the rest of the economy, specifically, with the industrial sector, and identify to what extent it has contributed to economic stagnation in Mexico.

How the Primary Sector Has Contributed to Economic Stagnation, 1970.-2011: An Econometric Exercise

From a Kaldorian perspective, the industrial sector, in particular, the manufacturing industry, determines economic growth (Kaldor, 1966). The idea is synthesized in his first growth law, which suggests that the growth dynamics of the manufacturing sector determine the overall economic growth rate.10 Following this idea, that is, assuming that the industrial sector is the motor for economic growth, the first step to understanding the role of the primary sector in economic stagnation consists of making an estimate that includes the growth rates of the primary and tertiary sectors as explanatory variables for the industrial sector. The objective is to identify if primary sector dynamics have played an important role in how the industrial sector has evolved. It would be expected that, for an economy to be successful, the dynamics of the primary and services sectors would be relevant to the growth of the industrial sector. This should be reflected in the parameters with positive (and statistically significant) signs.

To make this estimate, and conduct the subsequent econometric exercises, this study used annual data drawn from the United Nations database (available at: unstats.un.org) from 1970 to 2012. The variables used were the aggregate value of each productive sector in millions of real pesos (2005=100). The study began in 1970 because, as mentioned, the dynamic expansion of the primary sector began to slow down around the mid-1960s (Rodríguez, 1980; Calva, 2012; Moreno-Brid and Ros, 2009). In this sense, the aim was to identify whether or not the primary sector was relevant to the industrial sector, since the former began to enter into disarray.

As is the standard for this type of exercise, before proceeding to the estimate, we must know the order of integration of each variable to avoid spurious outcomes. To do so, this study used the Augmented Dickey-Fuller (ADF) test and the Phillips-Perron (PP) test. The information given in Table 4, in accordance with the results of these tests, indicates that all of the variables (the aggregate value of the primary sector [Pr], the industrial sector [In] and the services sector [Se]) have the same order of integration, in this case I (1), and as such, there is no risk of estimating regressions that produce spurious associations.

With this background, we can now estimate a regression where the growth rate of the industrial sector (gIn) is explained by the growth rate of the primary sector (gPr) and the tertiary sector (gSe). The results of this estimate are shown in Table 5.

As can be seen, the regression (estimated by OLS) had no issues in terms of normality, serial correlation, heteroscedasticity, or functional form. In addition, the estimated coefficients are revealing, because they indicate, on the one hand, that only the services sector has had an impact on the dynamics of the industrial sector over the past 40 years, and, strictly speaking, 1% growth in this sector generates 1.5% growth in the industrial sector. However, this result is not as surprising if we take into account the growth of the services sector during the period of study, which is reflected in growing share of the overall GDP.

On the other hand, the primary sector coefficient had a negative sign, indicating that it did not contribute positively to economic growth. Even so, this parameter is not statistically significant, and it could therefore be said that primary sector dynamics are not (or no longer) relevant to industrial sector dynamics. This is a first sign, as expected, that the primary sector no longer contributes, through the industrial sector, to economic development.

Now, given that all of these variables have the same order of integration, an exercise can be conducted to verify if, despite the above results, there is a long-term relationship, following the Kaldorian idea described earlier. To do so, using the Johansen cointegration approach (Charemza and Deadman, 1997; Asteriou and Hall, 2011) and in keeping with work by Yao (2000), the first step is to estimate an autoregressive vector (VAR), including the variables indicated above, but this time, transformed into their logarithms. We must remember that the Johansen procedure is a maximum verosimility method that uses dynamic systems of equations, specifically a vector autoregression model. Similarly, this approach allows for the identification of not only cointegration, but also, if confirmed, the number of cointegrated vectors as well as their specification (Oreiro et al., 2012).

Following the Kaldorian idea that the industrial sector is the motor of economic growth, the variables were included in the VAR in the following order: first, the industrial sector, then the primary sector, and finally, the tertiary sector. In the same way, the decision was made to include two dummy variables to capture the effects of atypical periods on the growth trends, that is, the 1995 crisis and the 2009 global recession. Now, based on the information criteria of Schwarz and Akaike, a VAR(1) was estimated among the indicated variables. Then, the Johansen cointegration test was conducted to figure out if there was a cointegration vector. In accordance with the Pantula principle (Asteriou and Hall, 2011) and the trace test and the maximum characteristic value test for the Johansen cointegration procedure, it was determined that the variables do cointegrate and there was at least one cointegration vector (see Table 6).

Given the above, it was time to estimate the vector error correction (VEC) model. The following equation captured the long-term elasticities obtained from the cointegration vector (the t statistic is shown in parentheses), that is, the normalized cointegration vector is:

Lin = 23.34 – 2.52LPr + 2.46LSe
          (3.25)     (-3.37)      (3.37)

The long-term results, as can be seen, confirm the previously obtained results. This time, all of the variables were statistically significant. In this way, the tertiary and industrial sectors maintained a positive relationship and, derived from our specification, it could be suggested that the tertiary sector even made a positive contribution to industrial sector growth. However, the primary sector maintained an inverse relationship with the industrial sector and, as such, with economic growth, meaning that its evolution, instead of driving growth, rather put the brakes on it. The main reason for this result owes to the fact that the sector has suffered from insufficient investment, itself the result of the dismantling of agricultural policy and, consequently, low growth.

Finally, Table 7 shows the adjustment parameters associated with the VEC model. Its statistical significance indicates the endogeneity or the (weak) exogeneity of each variable. As can be seen, all of the variables are endogenous, indicating that none of them causes the evolution of any other. This outcome, on the one hand, supports the finding that the primary sector does not promote economic growth. On the other, it is telling that neither the industrial nor tertiary sectors impact each other (or the primary sector). One possible explanation could reside in the weak links between productive sectors.

CONCLUSIONS

This work uses descriptive and econometric evidence to explore how the primary sector has contributed to economic stagnation in Mexico from 1970 to 2012. The outcome of the descriptive analysis indicates that the primary sector has both contributed to economic stagnation and aggravated external and internal restrictions on growth. The results of the regression revealed that the primary sector has not been significant for the dynamics of the industrial sector during the period of study. The cointegration results suggest, however, that in the long term, both sectors are related, although negatively, which reinforces earlier findings in the sense that the primary sector puts the brakes on economic growth. In particular, the estimates in this work indicate that in the long term, for every percentage point that the primary sector grows, the industrial sector slows down by a little over two percent.

The policy implications of this finding are important, because it is clear that the Mexican economy will only be successful, for reasons described throughout this work, if the primary sector can once again contribute to economic growth positively. To do so, it is time to change the anti-rural bias of the current economic model, which will involve implementing agricultural policy to guarantee that a productive surplus is generated for the primary sector, which will in turn depend on growth in productivity. This will necessarily require governmental support for the sector, introducing or reactivating policies that ensure improved inputs by way of research, education, applying new knowledge and modern techniques. It will also require financial support to facilitate access to credit and insurance with preferential conditions. It will be fundamental to develop infrastructure (for example, irrigation and storage), and support transportation, commercialization and processing, as well as implement price guarantees to maintain income stability for producers. Finally, commercial protections could also significantly contribute to strengthening the sector (Calva, 2007: Chang, 2009). There should be no reason why this type of agricultural policy, which has been (and is) in place in practically all successful countries, cannot be implemented once again in Mexico. Without it, achieving rapid and sustained economic growth will be impossible.

ACKNOWLEDGEMENTS

The authors would like to thank Mildred Espíndola for her support in building the various databases. They would also like to acknowledge the financial support provided by the UNAM-PAPIIT RN301213 project in conducting this research.

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______ (1988), Crisis agrícola y alimentaria en México 1982-1988, Fontamara, Mexico.

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* Institute of Economic Research-UNAM, aleph398@gmail.com and Universidad de Colima, Mexico, mayrenpg@gmail.com, respectively

1 Even so, one of the aspects up for debate is the possibility of achieving economic success based exclusively on the primary sector (see, for example, Adelman, 1984). In this context, there is empirical evidence for a set of developing economies that have demonstrated that the primary sector has been (and is) their motor of economic growth (Tiffin and Irz, 2006).

2 Regarding this, Yao (2000: 33-34) wrote that “due to unrealistic ambition and poor foresight, most governments of the developing world have been trying to industrialize their economies at so high a speed that agricultural growth is suffocated, resulting in […] poor performance of the entire economy.”

3 It is interesting to note that the Mexican economy has stagnated despite the essential success of the export-led growth model; in other words, manufacturing exports now account for practically all exports (a little over 80%), and have proved extremely dynamic on the world stage, growing at an average rate of 15% during the time period 1981-2012. This paradox has generated enormous interest in learning about the causes behind the slow growth of the Mexican economy.

4 It is notable that the primary sector also contributes to economic growth, generating both regional and environmental balance, as well as greater social cohesion (see Huang and Bouis, 2001).

5 It is relevant to point out that from a Marxist perspective, the transfer of value from the primary sector to the rest of the productive sector could also be sustained (Valenzuela and Isaac, 1999).

6 In this sense, it is no coincidence that since those days, there has been a marked decrease in the share of the primary sector in the total product.

7 Among these causes, there is, on the one hand, the mandatory adoption of adjustment and stabilization programs imposed by the IMF and the WB, which implied massive cuts to public spending and, on the other, the multiple efficiency problems that plagued the sector as the result of a long period in which it was highly subsidized and protected (Gómez-Oliver, 1996).

8 Calva (2012:69) ascertains, for example, that since the mid-1960s, price guarantees were no longer used as a tool to support production and became an anti-inflationary anchor. This mechanism, however, was temporarily restored in the 1970s.

9This increase was also related to the time period, the result of a massive inflow of capital in 1989-1994. These flows were also sterilized by the central bank, and as is well-known, these operations implied an increase in internal credit.

10 See, among others, Felipe (1998), Dasgupta and Singh (2006), McCausland and Theodossiou (2012), for empirical evidence confirming Kaldor’s first growth law.

Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 48, Number 191, October-December 2017 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,
CP 04510, México, D.F. Tel (52 55) 56 23 01 05 and (52 55) 56 24 23 39, fax (52 55) 56 23 00 97, www.probdes.iiec.unam.mx, revprode@unam.mx. Journal Editor: Alicia Girón González. Reservation of rights to exclusive use of the title: 04-2012-070613560300-203, ISSN: pending. Person responsible for the latest update of this issue: Minerva García, Circuito Maestro Mario de la Cueva s/n, Ciudad Universitaria, Coyoacán, CP 04510, México D.F., latest update: Nov 13th, 2017.
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The online journal Problemas del Desarrollo. Revista Latinoamericana de Economía corresponds to the printed edition of the same title with ISSN 0301-7036