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Mexico’s Competitive Position in the New Global Economy
Gordon HansonUC San Diego and NBER
November 2012
Mexico’s Competitive Position
The rise of emerging economies
• The most significant global economic event of the last two decades is the rise of the emerging world
• Booming supply of manufactured goods
• Booming demand for commodities
• Rising incomes, falling poverty in developing countries
• How has Mexico fared?
Hanson Nov 2012 2/24
Mexico’s Competitive Position
Mexico’s growth has been sluggish…
Hanson Nov 2012 3/24
100
150
200
250
300
1986 1991 1996 2001 2006 2011Year
Mexico Brazil ArgentinaIndia Indonesia Thailand
Real GDP per capita (1986=100)
Mexico’s Competitive Position
reducing the relative size of Mexico’s market
Hanson Nov 2012 4/24
0
1
2
3
4
5
perc
ent
1991 1995 1999 2003 2007 2011Year
Mexico Brazil ArgentinaIndia Indonesia Thailand
Country share of world GDP (PPP)
Mexico’s Competitive Position
Though even with tepid growth poverty has fallen
Hanson Nov 2012 5/24
0
10
20
30
% o
f pop
ula
tion
1992 1996 2000 2004 2008Year
Mexico Brazil ArgentinaChile Malaysia Thailand
Population living on less than $2 a day
Mexico’s Competitive Position
Explaining Mexico’s growth record
• The usual suspects
• Weak credit markets intermediate savings poorly
• A large informal sector drags down productivity growth
• Regulatory capture hampers telecoms, energy
• China’s growth has weakened Mexico’s market position
Hanson Nov 2012 6/24
Mexico’s Competitive Position
Domestic credit to private sector in Mexico is low
Hanson Nov 2012 7/24
0
10
20
30
40
50
60
% o
f GD
P
1996 2001 2006 2011Year
Mexico Brazil ArgentinaIndia Indonesia Philippines
Domestic credit to private sector
Mexico’s Competitive Position
An abundance of small firms keeps productivity low
Hanson Nov 2012 8/24
Source: Hsieh & Klenow
Mexico’s Competitive Position
Mexico’s has low electricity output
Hanson Nov 2012 9/24
.05
.1
.15
.2
.25
.3
1985 1989 1993 1997 2001 2005 2009Year
Mexico Brazil ArgentinaIndia Indonesia Thailand
Electricity production (kwh per dollar of GDP)
Mexico’s Competitive Position
Mobile penetration in Mexico is relatively low
Hanson Nov 2012 10/24
0
25
50
75
100
125
1991 1995 1999 2003 2007 2011Year
Mexico Brazil ArgentinaIndia Indonesia Thailand
Cellphone subscriptions per 100 people
Mexico’s Competitive Position
China’s export surge has restricted Mexico
Hanson Nov 2012 11/24
2
4
6
8
10
12
14
perc
ent
1991 1996 2001 2006 2011Year
Mexico Brazil ChinaIndia Indonesia Thailand
Country share of world manufacturing exports
Mexico’s Competitive Position
Revealed comparative advantage I
Hanson Nov 2012 12/24
-4-3
-2-1
01
1962 1968 1974 1980 1986 1992 1998 2004 2010Year
Mexico China Korea Taiwan
Transport equip, machinery, electronics (SITC 7)
Mexico’s Competitive Position
Revealed comparative advantage II
Hanson Nov 2012 13/24
-2-1
01
2
1963 1968 1973 1978 1983 1988 1993 1998 2003 2008Year
Mexico China Korea Taiwan
Apparel, footwear, furniture, toys (SITC 8)
Mexico’s Competitive Position
Revealed comparative advantage III
Hanson Nov 2012 14/24
-3-2
-10
12
1962 1968 1974 1980 1986 1992 1998 2004 2010Year
Mexico Canada Malaysia Indonesia
Oil, coal, gas (SITC 3)
Mexico’s Competitive Position
Prescriptions for economic growth
• Ideas for policy reforms (neither new nor easy)
• Strengthen protection to creditors
• Reduce incentives to join informal sector
• Raise incentive to stay and to excel in school
• Enforce anti-monopoly provisions
• Reform energy sector
Hanson Nov 2012 15/24
Mexico’s Competitive Position
Where else could growth come from?
• Possible sources of increased GDP
• Cost increases in China improve Mexico’s terms of trade
• Education spurs human capital accumulation
• Urbanization generates knowledge spillovers
• Digitization reduces information costs
Hanson Nov 2012 16/24
Mexico’s Competitive Position
Mexico’s manufacturing cost disadvantage is declining
Hanson Nov 2012 17/24
0
1000
2000
3000
4000
5000
US
Dol
lars
(20
08)
1996 1998 2000 2002 2004 2006 2008
Mexico ChinaIndia Philippines
Annual earnings in manufacturing
Mexico’s Competitive Position
China’s comparative advantage is shifting
Hanson Nov 2012 18/24
0
1
2
3
4
5
6
7
8
% o
f Chi
na'
s to
tal e
xpo
rts
1991 1995 1999 2003 2007 2011Year
Footwear Completed computersChildren's toys Telecom transmitters
China's top export products
Mexico’s Competitive Position
Mexico is keeping pace in educational attainment
Hanson Nov 2012 19/24
4
6
8
10
1990 1995 2000 2005 2010Year
Mexico Brazil ChinaIndia Indonesia Philippines
Average years of education (25-29 year olds)
Mexico’s Competitive Position
While Mexico is already highly urbanized…
Hanson Nov 2012 20/24
0
20
40
60
80
perc
ent
Emerging economies
China India Indonesia Mexico United States
Share of population in urban areas
1970 1990 2010
Mexico’s Competitive Position
there is still some room for growth in large cities
Hanson Nov 2012 21/24
0
10
20
30
40
50
perc
ent
Emerging economies
China India Indonesia Mexico United States
Share of population in cities > 1 million inhabitants
1970 1990 2010
Urbanization and economic growth reinforce each other
Hanson Nov 2012 22/24Mexico’s Competitive Position
AGO
ALB
ARBARE ARG
ARM
ATG
AUSAUTAZEBEL
BEN
BFA
BGD
BGR
BHRBHS
BLR
BLZ
BOLBRABRN
BTN
BWA
CAF CANCHE
CHL
CHN
CIVCMR
COG
COL
COM
CPV
CRI
CSSCYP
CZEDEU DMADNK
DOM
DZA
ECU
EGY
EMUESP
ETH
FIN
FJI
FRA
FSM
GAB
GBR
GEO
GHA
GIN
GMBGNB
GRC
GRDGTM
GUYHKG
HND
HRVHUN
IDN
IND
ISL ISRITAJAM
JORJPN
KAZ
KEN
KGZ
KIR
KNA
KOR
LAO
LBN
LBR
LKA
LSO
LTU
LUX
LVAMAC
MAR
MDA
MDG
MEAMEX
MKD
MLI
MLT
MNG
MOZ
MRT
MUS
MWI
MYS
NAC
NAM
NER
NGA
NIC
NLD NOC
NOR
NPL
NZL
OMN
OSS
PAK
PAN
PER
PHL
PNG
POL
PRTPRY
PSS
ROMRUS
SAU
SDN
SEN
SGP
SLB
SLE
SLV
SRB
SST
SUR
SVKSVN
SWE
SWZ
SYCSYR
TCD
TGO
THA
TJK
TKMTON
TTO
TUNTUR
TZA UGA
UKR URYUSA
UZB
VCT
VEN
VNM
VUT
WSM
YEM
ZAF
ZMB
-.01
0.0
1.0
2.0
3.0
4A
nnua
l ne
t gro
wth
in u
rban
po
pula
tion
-.05 0 .05 .1Annual growth in per capita GDP
Growth in urban population and growth in GDP
Digital connectedness is ahead of income growth
Hanson Nov 2012 23/24Mexico’s Competitive Position
2000
2010
-8-6
-4-2
0lo
g m
obile
su
bscr
iptio
ns
per
capi
ta
7 8 9 10 11log per capita GDP
Cellphone penetration and average income
2000
2010
Mexico’s Competitive Position
The path ahead for Mexico
• Long-term economic growth is spurred by capital accumulation and steady improvements in productivity
• Institutional deficiencies in Mexico are impediments to both
• Policy reform has failed to address these deficiencies
• But there are some reasons for optimism
• Despite reliance on US, Mexico survived the GFC rather well
• Poverty has fallen sharply, educational attainment is rising
• The China threat is weakening, creating market openings
• Past policy inaction means there is money on the table
Hanson Nov 2012 24/24
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