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.


Jocelyn

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.

Leo Peragallo

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).

Leo Peragallo

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.

Celene

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

Ellen

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."

jrgiguere

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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Greg

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

Alex in Chicago

Probably because most of Mexico's most productive citizens come to America.

Mexican resident

The government appears to be losing control of the country. Just in this week alone, the town of Cuidad Mier has been abandoned due to attacks by rival gangs. The army is outgunned. Convoys of heavily armed narcos ride around with impunity. And you wonder why Mexico is poor? Mexico is rapidly turning into Afghanistan, yet Obama never seems to glance over his shoulder.

caia

Did he consider the possibility that free trade and privatization are not the boon to economies that the IMF and World Bank pretend them to be?

Marco

It's not that Mexico is poor, it's just that Mexico hasn't seen spectacular growth like other transitioning countries such as China or Brazil. Even then, I always argue that you can have moderate growth over a long period of time, or large growth, over a short period of time. For countries such as Brazil and China, I think the latter applies more correctly. China has experienced 10%+ growth, while Brazil 7%+, and both are already beginning to show signs of slowing growth. Mexico on the other hand has experienced around 3-4% average growth in the past decade, while in Brazil and China the growth has been more sporadic. I'm playing this off logic but it seems maintaining moderate growth, is much more easily maintainable than high growth rates. I wouldn't be surprised if Mexico maintains 3-4% avg. growth over the next decade, while Brazil and China's growth slow to Mexico's current rates by 2020. It is also much easier to do business in Mexico than it is in either China or Brazil. Mexico, along with Argentina, have the lowest income inequality rates in Latin America, while the region's so-called best performer, Chile, has the highest income inequality along with Brazil. Income inequality in Mexico and Argentina is generally on par with that of the United States. I also always emphasize to people that Mexico is not poor. It is actually very rich by international standards. The problem is that they have one of the world's richest countries right next door. Mexico has also done a very excellent job of reducing poverty and creating public safety nets. Poverty has dropped from 40% of the population in 1995, to just over 18% now in 2010. If this trend keeps up, by 2017 Mexico's poverty rate will be right on target with the US poverty rates. My hope is that by 2020, we can add Argentina, Chile, Mexico and Uruguay to the list of "Developed Countries". I'm thinking this will be the case since Uruguay, Chile and Mexico recently broke the $10,000 GDP Per capita (Nominal) rates, which is generally the hardest obstacle to overcome to graduate into the highest economic classification available.

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Boraxo

This is an easy one:
Lack of birth control.
Lack of protection for private property rights (investors flee to safer countries).
Too much spending on security.
Too many illegals straining services (ironic, but true, as central americans flee north).

Kind of surprised you missed this one.

Drill-Baby-Drill Drill Team

Some of the most successful colonies which became first-world wealthy owe a lot to the English system of colonies, compared to let's say the French, Spanish, Italian, Dutch, Portuguese. or Russian.

America, Canada, Australia, South Africa and India are a lot better off former colonies compared to Haiti(Fr), Congo(Fr), Algeria(Fr), Mexico(Sp), Paraguay(Sp) Dominican Republic(Sp), Eritrea & Somalia(It), Indonesia(Dutch), Mozambique & Angola(Portug), Belaurus & Uzbekishtan(Russia).

Mexico may have inherited a Spanish system of government and commerce that was less competitive than the English system. A 'Manana Culture' instead of a ambitious pragmatic culture.

In contrast, the Chinese, like the Jews, have a diaspora of people forming a private network of commerce integrated into local communities instead of a national colonial effort. There is no Jewish empire and no Chinese empire. But there are hundreds of China towns in South Asia, Africa and South America.

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ghostcommander

Stephen J. Dubner is certainly short on facts which should have been added.

Approximately 2 years ago the equivalent min. hourly wage was $4.29. Approximately 50% of Mexican residents work at this level or less.

Isn't there about ten families that own Mexico and aren't they very monopolistic? Not much competition is allowed when it comes up against the monopolies.

In the late 90's Mexico was beginning to have economic problems and paying their debt. Advisers from the USA informed them to slowly reduce the value of the peso.
What they did was criminal to the working people of Mexico. Those in the know converted their peso holdings into dollars and then floated the peso, which almost crashed putting millions of Mexicans out of work. Then those who responsible reconverted their dollars into peso's and increased their holdings in Mexico.

The birth rate in Mexico is very high and the death rate is very low pitting more and more Mexicans against each other in competition for the measly resources available for 50% or more of the Mexican population.

Another problem is machismo and no birth control which is a contributing factor in continual poverty, corruption, and even health problems.

The Catholic Church with their stance on no birth control or abortions has doomed over approximately 50% of the Mexican people to a miserable existence.If they could only limit their birth rates their lives would improve.

One thing I must say about the Mexican people is that they are alive and full of life, even though life is harsh to them. The drug cartel wars have only made the problem worse for many of the Mexican citizenry

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Tom O'Brien

I grew up in Guadalajara, Mexico. I have to say that Mexico isn't rich because it's citizens are not free. Mexico was governed by a single party for 60 or so years, and the entire country was organized to enrich those in power.

There is no credit, there is no economic opportunity in Mexico for those not born to wealth. There is also significant discrimination against the lower class in Mexico, and I believe that it is virtually impossible for one to move from one economic class to another. Add to that the pervasive corruption of the bureaucracy and you have a toxic stew of not good.

The guy who cuts my lawn in the US is from Mexico and he doesn't read. But he has a thriving business with at least $500,000 in assets, his own house and most important, all of his kids are going to college. This cannot happen in Mexico.

@tomob

Robby

The lack of incentives and flow of trade are what is holding Mexico back. Thy produce the same goods as China which does them no good in the competetive market. i think they need to find new exports to produce, so that they don't find themselves competing so greatl with other countires.

Israel Carranza

Most of the guilt is because we are "kidnapped" by the congress, deputies, governors, majors etc just keep "jumping" from one goverment position to another, political parties keep looking for their personal interests.
Instead of creating new laws, making reforms, searching for true ways of ending orginized crime, bust the economy, they keep presenting "junk" ideas while the others only spend time on rejecting them.

This won't end unless the population do "something" to reform the congress.

How can I say all this?... Is the common thought in México, ask whoever you want in the country and most will say the same or similar

P.S. that about the two types of mexicans in the second comment is not correct.
The army is not outgunned, we just don't have martial law running right now 'cause that would mean halt the "individual garanties" we all mexican citizens have, and then the army could overrun cities.

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Penny

Professor Giguere (comment number 6) blames Mexico's poor economy on proximity to the US. I would welcome his explanation of why such proximity has not made Canada poor.

tito

I have met a lot of people from Mexico and one thing that it come to my attention is that 9 out of 10 is illiterate , maybe that is one of the reason why that country is poor

Sanford Faden

Spain and Portugal exported Feudalism. England, through a policy of benign neglect, brought the Enlightenment. This pattern was repeated throughout the world with similar results.