Mexico (Crisis and Competetiveness)

Why has Mexico grown so slowly (1.4/yr.) since 2001?

Mexico’s slow growth of just 1.4%/year was triggered by several circumstances. First of all, due to its geographical proximity and its membership in the NAFTA, Mexico is closed tied to the US economy. In 2001, this was hit by a double dip recession thereby affecting the Mexican economy negatively. Furthermore, China entered in 2001 the WTO, thereby being a direct competitor of Mexico’s exports to the US. Since Chinese companies could produce cheaper in all sectors, except of those that depend on proximity to the states and high technology, Mexico lost comparative advantages and market share.

Furthermore, the Mexican economy was weakened by the H1N1 virus, the greatest decrease of the oil price ever and a devastating drought. Due to the rising activity and power of organized crime, FDI was threatened and President Calderon spend billions of Dollars to fight the cartels. Moreover, responsible for such a slow growth were a bad educational system as well as a weak institutional framework that was not able to deal with anti trust in an efficient way. Consequently, Mexico suffered under monopolies and oligopolies in several key industries, thereby leading to inefficiencies in the market. Furthermore, the ruling party of President Fox governed the country only with a slightly majority. Since President Fox lacked in the political skills to work together with the opposition, Mexico did not receive the needed reforms during his legislation, thus no progress and growth.

Does Mexico benefit or suffer from its proximity to the USA?

The proximity to the US is a mixture of advantages and disadvantages for Mexico. The Mexican economy depends on tourism and imports from the US. Due to its proximity, and the NAFTA agreement, Mexico is predestinated to be one of the greatest trading partners of the US, especially in key sectors like oil. However, this close link to the US economy put the Mexican economy in danger in the...