mexico’s competitive position in the new global economy gordon hanson uc san diego and nber...

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 growth has been sluggish…


100

150

200

250

300

1986 1991 1996 2001 2006 2011Year

Mexico Brazil ArgentinaIndia Indonesia Thailand

Real GDP per capita (1986=100)

Hanson, Gordon

Hanson, Gordon

Average annual growth of 1.1% for Mexico


reducing the relative size of Mexico’s market


0

1

2

3

4

5

perc

ent

1991 1995 1999 2003 2007 2011Year


Country share of world GDP (PPP)


Though even with tepid growth poverty has fallen


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


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



Domestic credit to private sector in Mexico is low


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


An abundance of small firms keeps productivity low


Source: Hsieh & Klenow


Mexico’s has low electricity output


.05

.1

.15

.2

.25

.3

1985 1989 1993 1997 2001 2005 2009Year


Electricity production (kwh per dollar of GDP)


Mobile penetration in Mexico is relatively low


0

25

50

75

100

125

1991 1995 1999 2003 2007 2011Year


Cellphone subscriptions per 100 people


China’s export surge has restricted Mexico


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


Revealed comparative advantage I


-4-3

-2-1

01

1962 1968 1974 1980 1986 1992 1998 2004 2010Year

Mexico China Korea Taiwan

Transport equip, machinery, electronics (SITC 7)


Revealed comparative advantage II


-2-1

01

2

1963 1968 1973 1978 1983 1988 1993 1998 2003 2008Year

Mexico China Korea Taiwan

Apparel, footwear, furniture, toys (SITC 8)


Revealed comparative advantage III


-3-2

-10

12

1962 1968 1974 1980 1986 1992 1998 2004 2010Year

Mexico Canada Malaysia Indonesia

Oil, coal, gas (SITC 3)


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



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



Mexico’s manufacturing cost disadvantage is declining


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


China’s comparative advantage is shifting


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 is keeping pace in educational attainment


4

6

8

10

1990 1995 2000 2005 2010Year

Mexico Brazil ChinaIndia Indonesia Philippines

Average years of education (25-29 year olds)


While Mexico is already highly urbanized…


0

20

40

60

80

perc

ent

Emerging economies

China India Indonesia Mexico United States

Share of population in urban areas

1970 1990 2010


there is still some room for growth in large cities


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

Hanson, Gordon

Slope coefficient is .18 (.05)

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

Hanson, Gordon

Slope coefficients are 1.47 (2000), .37 (2010)


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


mexico’s competitive position in the new global economy gordon hanson uc san diego and nber...

Documents

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sluggish hanson

table hanson

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income growth hanson

restricted mexico hanson