Mexico: “Disappointing Indeed”

Eric Verhoogen has a very interesting working paper called “Industrial Structure and Innovation: Notes Toward a New Strategy for Industrial Development in Mexico.”

While good policies may be necessary for rapid economic growth, it’s increasingly clear that they are not sufficient (see my paper with Kevin, Only Income Diverges: A Neoclassical Anomaly, for more on this topic).  I think one of the reasons for reform backlash is the fact that the promised benefits haven’t been very forthcoming. Mexico is a perfect example of this.

Eric shows that a wide variety of countries have performed better than Mexico in the 1980-2008 period, including Chile, Malaysia, Thailand, Indonesia, Turkey, Hungary and Bulgaria.  Instead, he argues that “Mexico is in a league with Brazil, Argentina, the Philippines, and Romania, none of which has adhered as faithfully to orthodoxy. Mexico convincingly beats only Venezuela. Disappointing, indeed.”

A lot of reasons have been put forth for why Mexico has not lived up to expectations, but Eric has a different perspective.  He argues that Mexican manufacturing have specialized in areas with “low rates of innovation.” While this might have been consistent with Mexico’s comparative advantage, it isn’t a strategy that will fuel economy-wide growth nor move Mexico up the development ladder:

“Mexico has been facing a generic problem of industrial development in middle-income countries: how, in the presence of market failures in the learning process, to continue to move up the ladder of quality and technological sophistication, while staying ahead of poorer countries trying to move up the same ladder. It is not clear that market processes alone would have solved this problem.”

On a more optimistic note, he finds that things are already starting to change and that a different industrial strategy could lead Mexico to much brighter economic future.

One thought on “Mexico: “Disappointing Indeed”

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