The Story of Mexico and its Internal Struggles

Before diving into Mexico’s internal struggles, we thought it would be useful to highlight some important data points on the country:/>

  • Mexico has a population of 127.5 million people
  • The country’s life expectancy is 76.9 years with an HDI score of .76
  • The contribution to GDP are broken up as follows: 63.2% services, 33.1% industry, 3.7% agriculture
  • Mexico exports 81.24% of its goods to the US
  • Mexico had a GINI Index rating at .459 in 2015, which ranked as highest in the world followed by Chile (OECD)


Mexican GDP Statistics  (LCU = Local Currency Unit)

Source: World Bank

In Mexico, we see large inequalities in the country, largely separate by geography. Data shows that since 1985, the weight of the Northern states, as a percentage of national GDP, went up from 23% to 28%, while Southern states’ share decreased from 20% to 16% (SEDATU 2014). Experts mark this change over the last 2 decades as a result of Mexico’s economic regime shift from an “import substitution” strategy towards a free-trade approach with the arrival of the NAFTA agreement. Regions along the coasts also are able to support the Travel and Tourism industry, which represented 16% of the country’s total GDP in 2016 (WTTC). In the southernmost regions of the country, we see large indigenous populations, and low GDP per capita relative to the rest of Mexico. According to an Oxfam report, 1% of the Mexican population owns 43% of its wealth.

Aside from inequality, Mexico has a multitude of other economic woes. The four issues we chose to examine are corruption, reliance on exports, high inflation/weak peso, and a heavy reliance of the US. Each of these play a role in exacerbating Mexico’s economic problems, and raise uncertainty for the future.

Corruption has always been prevalent in Mexico. The large presence of the drug trade has created an environment where politicians and lawmakers are often coerced by criminals. Cartels can often take over areas or local governments. Corrupt politicians often act in the their own best interest, which leaves the common people of Mexico behind. This environment does not breed productive legislation. Also, numerous economic studies point to corruption having a negative effect on economic growth (Latin American Journal of Economics).

Mexico is an extremely export driven economy. Exports, while being helpful to growth, can also pose an issue in times of crisis. Countries across the globe reduce consumption, thus hitting exporters very hard. Also, the vast majority of their products are traded in the US (81%), and with the the current administration expressing desires to alter/leave NAFTA, Mexico could face dire consequences. As shown above, Mexico experienced -4.7% GDP growth in 2009. This figure represents the sensitivity of Mexico’s export driven economy to global financial shocks.

Despite recovering, 2017 has been a tumultuous year for the peso. With the election of Trump, the peso dropped due to speculation and uncertainty regarding the currency. With threats to drop out of NAFTA, build a border wall and cut ties with businesses that export production to Mexico, the peso could be subject to additional future devaluation. Persisting inflation could be agitated by a weakened peso, which then could force the central bank to raise interest rates. Raising interest rates decreases overall export levels, which could also prove detrimental to their economy.

While many problems in the Mexican economy are caused internally, there are also external variables that influence the country’s development. Mexico has developed a strong economic relationship with its northern neighbor over the years. This reliance has made its economy susceptible to change whenever the US does, as we all saw in the 2008 financial crisis. In the past 2 decades, the US share of Mexican imports has dropped from 83% to 47%. While Mexico is able to leverage a relationship with a powerful, large economy, it also is vulnerable to competition from the rising economies of the world.

Questions to consider:
How does Mexico’s reliance on the US play a role in its growth and development?What are some strategies the country can undertake to deal with regional disparities in wealth, if any?Sources:


Burke Plater and Will Nuti

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12 Responses to The Story of Mexico and its Internal Struggles

  1. inglism18 says:

    Since Mexico relies so heavily on its stream of exports into the United States, if Mexico-US relations go south, then Mexico suffers greatly. This is a serious consequence of such a reliance. However, if those relations remain, then the result is a constant economic driver for this developing country. Despite President Trump’s stance on Mexico, these benefits seemingly outweigh these costs. Another thing to consider though: as you mention, since this economy is as linked to others as it is, any financial crisis in the world will also impact Mexico’s economy.

    If we take the position that these benefits do not outweigh the costs, then we should consider how Mexico could potentially shift away from such a heavy reliance on exports and to a more internally-driven economy. Do you all have any ideas of how this idea could come to fruition?

  2. Mac Zheng says:

    I feel like corruption is more of a detriment to Mexico’s growth than the countrys’ reliance on exports to US. As long as internal problems plague Mexico, then it will continue to be hard for them to depend on external benefits. The drug Cartels are extremely powerful within Mexico not only from an economic standpoint but also a cultural standpoint. Hence, corruption exists at all levels between these entities and the government. A notable feature of many developing countries as well is the relevance of criminal syndicates. I think a step for Mexico to continue economic development is to try and tackle their internal woos with criminal syndicates etc.

    • the prof says:

      Isn’t corruption in Mexico financed by the illegal drug market in the US? Our primary policy of interdiction not only fails to keep drugs out but keeps the prices high and so makes it worthwhile to use violence and bribery.

  3. ferrise20 says:

    It’s interesting that Mexico’s southernmost states, which have the largest indigenous populations, also experience the lowest GDP per capita and contributions to GDP. If agriculture is only 3.7% of GDP, and Mexico’s southernmost states contribute 16% to GDP, what kind of living do most indigenous people in Mexico make – subsistence farming? Also, has the peso’s status changed much since Trump’s election? To what extent do his words affect fears and expectations rather than actual economic performance? Since Mexico exports 81.24% of its goods to the US, has Trump’s election and presidency prompted Mexico to further explore other trading opportunities? The potential effects of raised interest rates on export levels is frightening for an economy that relies so heavily upon exports.

  4. shelbyc18 says:

    Regarding corruption, how do we fix this problem in a country heavily controlled by the cartels? The United States provides the market for the drug trade, and the war on drugs hasn’t been successful. Also, lots of marijuana still flows into California despite legalization. With police and government officials in the cartels’ pockets, the elites get richer while the poor remain without beneficial policy to boost the job market and further economic development. However, there is no incentive to change, therefore international help is necessary here to decrease or eliminate corruption.

  5. wheelers19 says:

    Mexico is showing signs of becoming a somewhat developed economy, however, they still face issues. The southern part of Mexico is closer to rather unstable and dangerous Central American countries and that influence spreads over the border, as well as having logistically more expensive export costs to the United States. So if you were a US factory moving to Mexico to decrease costs, you locate in Northern Mexico and therefore more jobs are in Northern Mexico. Another factor is the domestic wage rate. Workers illegally emigrate from Mexico to the United States to work laborious jobs for higher pay than they would make in Mexico. The countries unemployment rate would be useful to see if there is any upward pressure on wages.

    • the prof says:

      So maybe there should be a stronger regional policy to improve education and roads in the South? I know someone from Mexico who set up a coin laundry in a small town there, a huge boon in the time saved from doing laundry by hand, in a town where people are too poor to afford a washer (or don’t even have plumbing / electricity to be able to do so).

  6. willinghamt19 says:

    I am wondering, how much a role does corruption play in the prevalence of inequality. It seems to me that need-based aid on any level would be especially difficult with a government that is less focused on the welfare of its citizens and is more focused on furthering the gains of some other entity (pretty much the definition of corruption). In fact, could it be that need-based aid which addresses inequality is the first thing to go in the face of corruption?

    Additionally, how might possible changing policies in the U.S. affect Mexico? May more nationalist/isolationist trade and hiring policies cause significant economic turmoil in Mexico?

  7. khanm18 says:

    In my opinion, with any developing country, heavy reliance on a certain product or country as its main source of exports is never a good thing. I believe it is imperative that Mexico develop strong economic ties to many other nations across the world in order to diversify its exports by geography and in general, be more confident that it will be able to sustain any political uncertainty that the current administration is causing Mexico. If we look at the peso’s movement over the course of Trump’s presidency, there are wild swings with every negative mention of Mexico by the administration.

  8. the prof says:

    Note that Mexico has more free trade agreements than the US, and that was before Trump killed the TPP. If you are a multinational, selling products in many countries, Mexico is an attractive location. If Trump kills NAFTA, that may lead various companies to exit the US because, while we are a major market, we’re still smaller than exports.
    Indeed, that’s why Audi is in Puebla, and VW in the US rather than one of Volkswagen’s other luxury marques.

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