Why Isn't Mexico Rich?

Photo: Esparta Palma

That’s the question asked by U.C.-San Diego economist Gordon H. Hanson in a new working paper (abstract here; PDF here). From the 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.

And, in case you were wondering, here’s an important footnote:

The growth of the drug trade may distort GDP figures for Mexico. It is likely that value added in cultivating and exporting marijuana and opium, manufacturing and exporting methamphetamine, and distributing cocaine from South America to the United States is not fully represented in the country’s national income accounts.

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  1. Jocelyn says:

    I know that our countries dont have riches like the united states because my parents come from el salvador. I know that in mexico there is a lot of drug dealing but there might be alot of reasons why they country is poor.

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  2. Leo Peragallo says:

    As mexican, also blame a culture of inequity between our fellow citizens, the mexican constitution de facto recognizes two types of mexicans: citizens and native people (with their own “Usos y Costumbres”/Uses and Habits” laws).

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  3. Leo Peragallo says:

    Drug dealing is about the 0.01% of the country’s PIB. We ave much more industries, we export cars, blackberries, xbox360, even we have our very own Sport Cart (Mastretta MXT), just take a look at “Economy of Mexico” in WIkipedia.

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  4. Celene says:

    I think that Mexico will not become rich unless the wealth is share with every citizen; not just with the drugdealers and government. Also all the violence has to stop before anything good can be done.

    ~C.G

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  5. Ellen says:

    While I lived in Mexico, there was a story/wry joke that I was told by several people in several variations when I asked why Mexico is so poor.

    “Poor? Mexico is not poor, it is rich! Mexico is a country blessed with wealth, in metals and minerals in and petroleum. We have a creative and hardworking population. We have two shorelines, two mountain ranges, we have fish and agriculture, and arts, crafts and culture to rival any country. We also have a government.”

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  6. jrgiguere says:

    1)South America suffer from the legacy of having been colonized by Spain and Portugal at the height of mercantilism, inheriting a culture that emphasized searching for gold ( used as money and confused with wealth) instead of producing goods like North America invaded later by France and England at the beginning of capitalism.
    As an example, Jacques Cartier, the first french explorer who came to Québec in 1534, sent report about his search for gold. Fortunately, his establishment didn’t endure. In 1608 when Champlain came,he sent back furs and other goods that had to be sold to get rich.

    2 )Mexico suffers from the same ill as the rest of the continent. “Poor Mexico,so far from God, so near the United States…”
    Two centuries of constant invasions and threat of it Mexico, at least three invasions
    Cuba , like Mexico subject to the contant scheming of the Golden Crescent Society see The Times wednesday
    http://opinionator.blogs.nytimes.com/2010/11/10/would-the-south-really-leave/#more-67971
    Honduras
    Nicaragua, the Walker invasion and in 1932 the imposition of the Somoza regime.
    Guatemala Walker once again ( where he died)
    Panama, seized from Colombia for the Canal construction (could you trust the barbarians to mange their own soil)
    Colombia
    El Salvador 1932
    Haiti blockaded and invaded repeatedly
    Dominican Republic.
    tranformed what could have been a productive relation amongst neighbors into distrust and lack of economic integration. Integration that the U,S’ always insisted, up to a few yars ago, should be a colonial and predatory one.
    Any country that dare acting uppity paid the price. (Guatemala 1954)
    Cuba all over the 20th century with the “liberation constitution” forcing Cuba to have the consent the U.S. Congress to amend its constitution.
    All South America learned the lesson of Haiti, whose slaves burned the plantations to prevent the return of the invaders : in the Americas, the only way to stay free is to be too poor to have value.

    Jacques René Giguere
    Professor of economics
    College de Sept-ÃŽles
    Sept-ÃŽles Québec Canada

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  7. Greg says:

    Isn’t it obvious? Before you can have a real economy, you must have rule of law.

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  8. Alex in Chicago says:

    Hidden due to low comment rating. Click here to see.

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