An Analysis of Economic Development in Mexico

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An Analysis of Economic Development in Mexico

• Violeta Hernández Espinosa
• Economic Development and World Resources
• Fall 2006

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Outline

• Background
• Physical Environment
• Sociological Environment
• Political Environment
• Economic Environment

• 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
• Future Policy Direction

• Top Three Development Challenges
• Poverty
• Income Inequality
• Employment

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Physical Environment
Location and area
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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

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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

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Sociological Environment

• Highly Urban Society
• 76
• Ethnic Composition
• -Mestizo 60
• -Amerindian 30
• -European 9

• 18 dedicated to Agriculture
• -27.9 in 1999

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Health and Education

• HDI Index .821 high
• Ranked 53/177
• Life Expectancy 75.09 years
• Infant Mortality
• 22.60/1000 (04), 36.2 (90)
• Great improvement, not enough High income 6.12

• Literacy Rate Total 90.95
• 7 indigenous
• Primary School Enrollment
• 109.21

• Secondary School Enrollment
• 78.83

• Higher education
• -greatest number of higher education institutions
• 22.40 enrollment

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Political Environment

• 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 Majority1st time in history, PRD
  second

• Independence from Spain 1824
• Revolution 1910-1920
• 1910-2000 Rule of PRI party
• Vote purchasing
• Rigged elections
• 2000 National Action party (PAN) victoryFox
• PRI ruling Congress

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Economic Environment
Mexicos GDP per Capita, PPP, 1994-2004

• Economic Freedom 2.82
• (1-5, 1most free)
• GDP 676.5 Billion
• Growing at 3, highly volatile
• GDP per Capita, PPP 9009
• Highest in the Region
• 30 of high income nations

Mexicos Annual GDP growth (), 1994-2004

• Unemployment 4
• Inflation controlled
• -- 4 in 2005

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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

Mexicos Balance of Payments, 1999-2004
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Top Three Development Challenges

• Poverty
• Inequality
• Unemployment, Underemployment, and the Informal
  Sector.

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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
  5-years-old

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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

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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

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Income Inequality The Dilemma
Mexicos Gini Coefficient, 1963-2003

• Growth with inequality vs. Equality with
  Stagnation?
• Before Liberalization (import-substitution)
  decreasing inequality
• Mexico has entered the upward-sloping tail of the
  Kuznets Curve

 
Augmented Kuznets Curve
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Unemployment, Underemployment, Informal Sector

• Holding desired 3.5-4 unemployment rate.
• Better than late U.S. record
• Whats 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.

Mexicos Unemployment Rates, 1995-2006

• Unemployment in agricultural sector highest
• in 15 years (05)

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Migration

• 1994-2004, migration to USA has increased by 350
• 1st place in world remittances, 20
  billion
• Surpassed FDI
• by 13

Urban and Rural Population Growth in Mexico,
1790-1995
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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

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Stagnant and fluctuating GDP rate of
growth

• Has been under the desirable over 5 for
  developing nations
• Highly volatile
• Volatility Inability to plan, effect on FDI

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Concentration of Exports and Export Market
Mexicos 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)
Remember the oil crisis? Any excess can
hurt you
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FDI, China, and Loss of Competitiveness

• From the end of 2000 to April
• 2004
• - 1 in 4 maquila enterprises left
  
• Mexico.
• - 1 in 3 reportedly relocated to
• China.

• Losing out even with geographic advantage and
  NAFTA
• All time high, in 2001, 26.8 billion
• 2003, 10.8 Billion
• (lowest since 1996)

• Mexico replaced by China as
• number one provider of
• imports, USA

• From 3rd to 22nd most attractive investment
  destination (04)

Mexico was the last nation to agree to allow
China into the WTO
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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

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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 Mexicos 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 itwhile 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
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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 Mexicos 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 Mexicos population
• The cost may be high and tends not to reach the
  remotest areas

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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

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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?

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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

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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

• 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

• Poverty growing and affecting over 50 of
  population

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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

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Future Policy Direction

• Corruption, corruption, corruption
• New laws must be put in place and enforced
• Unless corruption decreases, little progress is
  likely.
• Greater penalties
• Mexicos 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 Mexicos 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?
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QUESTIONS