Working Paper: NBER ID: w16580
Authors: Timothy J. Kehoe; Kim J. Ruhl
Abstract: Following its opening to trade and foreign investment in the mid-1980s, Mexico's economic growth has been modest at best, particularly in comparison with that of China. Comparing these countries and reviewing the literature, we conclude that the relation between openness and growth is not a simple one. Using standard trade theory, we find that Mexico has gained from trade, and by some measures, more so than China. We sketch out a theory in which developing countries can grow faster than the United States by reforming. As a country becomes richer, this sort of catch-up becomes more difficult. Absent continuing reforms, Chinese growth is likely to slow down sharply, perhaps leaving China at a level less than Mexico's real GDP per working-age person.
Keywords: Economic Reforms; Mexico; Growth; Trade; Foreign Investment
JEL Codes: F43; O47; P52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Mexico's economic reforms (E69) | growth rates (O40) |
| opening to trade and foreign investment (F10) | growth rates (O40) |
| structural inefficiencies in Mexico (F12) | lower growth rates (O49) |
| TFP stagnation in Mexico (F16) | lower economic growth (F62) |
| inefficient financial institutions and rigid labor markets (E69) | impeded growth in Mexico (O54) |
| China's development context (O11) | higher growth rates (O49) |
| lack of significant reforms in Mexico (E69) | observed stagnation (P27) |
| ongoing reforms (E69) | potential for catch-up growth in Mexico (O54) |
| TFP growth in China (O49) | economic growth in China (O49) |