Working Paper: NBER ID: w16470
Authors: Gordon H. Hanson
Abstract: Over the last three decades, Mexico has aggressively reformed its economy, opening to foreign trade and investment, achieving fiscal discipline, and privatizing state owned enterprises. Despite these efforts, the country's economic growth has been lackluster, trailing that of many other developing nations. In this paper, I review arguments for why Mexico hasn't sustained higher rates of economic growth. The most prominent suggest that some combination of poorly functioning credit markets, distortions in the supply of non-traded inputs, and perverse incentives for informality creates a drag on productivity growth. These are factors internal to Mexico. One possible external factor is that the country has the bad luck of exporting goods that China sells, rather than goods that China buys. I assess evidence from recent literature on these arguments and suggest directions for future research.
Keywords: Mexico; economic growth; credit markets; informality; China
JEL Codes: F1; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Poorly functioning credit markets (E44) | Productivity growth (O49) |
| Distortions in the supply of nontraded inputs (H31) | Productivity growth (O49) |
| Poorly functioning credit markets and distortions in the supply of nontraded inputs (D24) | Barriers to investment and innovation (O39) |
| Barriers to investment and innovation (O39) | Lower growth rates (O49) |
| Reliance on exporting goods that China sells (F10) | Unfavorable terms of trade (F14) |
| Unfavorable terms of trade (F14) | Economic performance (P17) |