2014 April 16 Wednesday
On Mexico's Poor Economic Growth

Dani Rodrik says in Mexico rising productivity is not broad-based and substantial parts of the economy are becoming less productive.

PRINCETON – When researchers at the McKinsey Global Institute (MGI) recently dug into the details of Mexico’s lagging economic performance, they made a remarkable discovery: an unexpectedly large gap in productivity growth between large and small firms. From 1999 to 2009, labor productivity had risen by a respectable 5.8% per year in large firms with 500 or more employees. In small firms with ten or fewer employees, by contrast, labor productivity growth had declined at an annual rate of 6.5%.

My guess is that the brighter people are concentrating in the larger firms. Economists should focus more the most capable workers when they try to figure out what is going on in less developed countries.

What would be very interesting to know: what do bright people do for a living in each country in the world? Are they concentrating together in the faster growing sectors? The computing and communications revolution enables bright folks to collaborate more easily. Are they using communications tech to deal more directly with each other?

Rodrik says the less productive sectors of developing country economies are expanding

What is new – and distressing – is that developing economies’ low-productivity segments are not shrinking; on the contrary, in many cases, they are expanding.

But what are "developing countries"? I suspect many are just less developed countries that continue to lag developed countries by historical margins. What needs to be separated out: countries that are narrowing the per capita GDP gap with the developed countries versus the countries that are doing no such thing.

How about we take Mexico for example? A bit of web searching turned up the relevant info: Mexico's gap with the United States is not closing at all. Mexico's per capita GDP as a ratio to USA was higher in 1980. Note the graph on that page which shows Chile making steady headway. Uruguay went down but recovered and leads Chile. Brazil has lost ground. So much for the wonders of NAFTA. Uruguay is doing better at over 25% of US per capita GDP and still rising. Chile is at 20% US per capita GDP and still rising as well.

On the sour side, notwithstanding the phenomenal dynamism of exports, the Mexican economy’s strategy these last decades has simply failed in its quest to achieve high and sustained growth. Indeed, while its contribution to world output was 2.68% in 1990 and 2.44% in 1996, it fell steadily since then to reach 2.23% in 2008 and 2.12 in 2013. The growth performance in per capita terms is even more disappointing. Indeed, from 1994 to 2012, Mexico’s GDP per capita, in constant US dollars expanded at a meager annual average rate of 1.1%, a very lackluster result even by Latin American standards, not to mention in comparison with the Mexican economy’s own growth experience in 1950-81. As Figure 1 shows, with such slow growth, Mexico’s gap with the US economy has kept widening since 1982, and the launch of NAFTA did not reverse this adverse trend. Indeed, in 1980 Mexico’s GDP per capita was 23% of the US level, by 1994 the percentage was smaller 17.7%, and 16.9% in 2012. Thus, although since NAFTA the trade position with the US has shifted from massive deficit to a significant surplus, the Mexican economy is lagging behind the US.

Not much changes.

Chile has slightly bypassed Argentina in per capita GDP. My guess is that Chile will continue to gain ground on Argentina. But it is surprising how highly Argentina continues to rank in South America given how badly its government mismanages and damages its economy.

What I would like to know: Why does Uruguay have over double the per capita GDP of Paraguay?

Share |      By Randall Parker at 2014 April 16 08:42 PM 

outsider said at April 16, 2014 10:47 PM:

What smart people in the Third World are doing is following John McTraitorcain's siren call and moving to the USA to replace native tech workers, janitors, and taxi drivers.

bob sykes said at April 17, 2014 6:18 AM:

It is Mexico's young and ambitious people (mostly men) who come to the US, either legally or illegally. A few years ago, it was noted that some Mexican towns and villages are nearly depopulated. Certainly, this selective creaming of the Mexican people must have some economic effect. Even mainstream economists in Europe and the US worry about aging populations and their effects, and Mexico's emigrants are aging that country.

Dan said at April 17, 2014 6:49 AM:

"Why does Uruguay have over double the per capita GDP of Paraguay?"

Uruguay is mainly European. Paraguay is mainly Mestizo.

Toddy Cat said at April 17, 2014 8:05 AM:

"It is Mexico's young and ambitious people (mostly men) who come to the US, either legally or illegally"

Yes, this deranged idea that a lot of liberals have that somehow mass migration benefits Mexico is absurd, and this proves it.

DdR said at April 18, 2014 6:52 AM:

@ Dan

I'm sure Randall's question is actually rhetorical, as he knows very well why Uruguay outcompetes its neighbor by 2x.

This is also the likely explanation why Argentina still has a high GDP even though its government is in shambles.

Trey said at April 18, 2014 1:27 PM:

It's all about RACE. I put it in caps because people spend years trying to "analyze" something that would take 5 minutes if they just talked openly about RACE.

DdR said at April 18, 2014 2:29 PM:

I just recalled something funny.

I used to live in Germany and would watch some of their shows. There was this one show called "Goodbye Deutschland". It involved Germans fed up with their country and deciding to emigrate.

The one episode I recall concerned a couple who was sick of the German stuffiness, prices, and cold weather. They decided to move to Paraguay. So the show films the couple before the move, during the move, and follows up with them six months after the move.

The couple after six months was completely despondent. They couldn't take the poverty. They couldn't take the horrible infrastructure. The lack of quality products. Poor healthcare. Poor services. Ad nauseum.

I say they get what they deserve. Amazing they think they can pick up and leave arguably the most advanced country in the world and think that a third-world country will live up to it.

They eventually moved back to Germany.

I think Americans should experience living in a third-world country for a period of time. See how the populous lives. What they value.

I think the Americans will quickly realize that if you begin allowing those third-world people into the country, it will begin changing America into something that they actually think is quaint to visit once in a while, but hell to live in.

Pablo said at April 18, 2014 8:01 PM:

Mexico is full of mexicans.

And you are correct, Trey. Kinda like "crime."

Daniel said at April 18, 2014 8:44 PM:

@ Ddr,

The Germans just picked the wrong country. On the evidence commented on above, they should have moved to Chile, Argentina or Uruguay. While not up to the standards of Germany in most indicators, these countries are far from basket cases and one could enjoy a very pleasant life there. And the Germans will immediately benefit from the social cachet of being European.

chancery said at April 19, 2014 12:33 PM:

Demographics explain everything is SA, just look at average IQ.

hell_is_like_newark said at April 19, 2014 2:03 PM:

Chile actually has a fair number of German decedents. Thousands of Germans emigrated to Chile during the 19th and early 20th century.

Steve Sailer said at April 23, 2014 9:06 PM:

What are big firms in Mexico? Walmart, Ford, Nissan, Coca-Cola? My guess would be that foreign-run companies are pretty efficient, but not Mexican ones. Mexico has a mediocre working class and a pretty terrible elite.

Toddy Cat said at April 24, 2014 11:14 AM:

"Mexico has a mediocre working class and a pretty terrible elite."

Yes, even by Latin American standards, Mexico's elite is pretty bad, and seems to be getting worse. Mexico's middle classes and working class are no great prizes, but they generally work hard, have some motivation, and something could be made of them with a little leadership. Instead, all the Mexican elites can think of to do is send anyone with two brain cells to rub together, and any kind of work ethic, off to subvert and ruin the United States. A truly pathetic performance.

Check it out said at April 24, 2014 2:09 PM:

I don't think it's race, or that Mexico is full of Mexicans. I think it's religion. I think that a country's standard of living in inversely proportional to its percentage of religious people. See how much religious radicalism has grown in the U.S., and how the standard of living and happiness also continues to plunge?

Toddy Cat said at April 25, 2014 9:15 AM:

Yeah, the United States is now so religiously radical that we have gay marriage in all fifty states, you csn't put up a Christmas tree by the courthouse without getting sued, and any expression of traditional Christian sexual morality is punishable by being fired. Try again.

Spooky said at April 25, 2014 4:25 PM:

It is race, you blithering tool. Visit Detroit.

Trey said at April 25, 2014 6:03 PM:

Check It Out, of course it is RACE. The US was deeply religious in the 19th century and become an economic superpower. Mexicans are not more fanatically religious than Americans today.

Wolf-Dog said at April 26, 2014 7:17 AM:

Check it out: Even during the industrial revolution England was deeply religious but became incredibly successful, and its culture had a positive influence in promoting free thinking in the world. The abolition of slavery in England became possible despite religion, if not because of religious thinking. But note carefully that after the atheist Napoleon came to power, one of the first things he did was to reinstate slavery banned by the French Revolution. The Southerners were quite religious on the surface but they were adamant about maintaining slavery in their plantations, and there are new books that show that the reason the Southern states joined the American revolution against the British rule was precisely because the Southerners were worried that the new British legislation that banned slavery in England might one day be applied to the colonies also. It is not just religion, but the quality of the people who practice the religion that matters.

Check it out said at April 28, 2014 3:43 PM:

I think it's religion and fear, well they are pretty much the same. I mean one -fear- leads to the other. When a nation has lived in fear for a long time its people become stupid. We can see that process taking place now in both the U.S. and Mexico. I mean Americans, generally speaking are just as stupid as Mexicans, regardless of race and there's evidence of that all around us.

To both Trey and Wolf-Dog,

Take a look at non-religious Norway, Sweden, Denmark, Netherlands, Finland, Belgium and on the other side in Europe, high-religious Ireland, Poland, Spain, Greece. You can also consider the rest of the world, like North Africa, Sub-Saharan Africa, Middle East, Latin America, Indonesia. What do all the countries with the higher standard of living have in common? Much lower percentages of religious population. I have to admit, the U.S. is the exeption or should I say WAS the exception. The U.S. is not so hot anymore, is it? However the high standards of living seem to apply only to the wealthy American.

The Industrial Revolution was precisely NOT the product of religion, but the strong healthy impetus of Renassaince. During the times of the Industrial Revolution England was FAR less religious than during the Dark Ages, wasn't it?

"The Southerners were quite religious on the surface but they were adamant about maintaining slavery in their plantations,....." No, the Southenrners were and still are quite, very religious in depth not on the surface. Remember that the Bible recommends the slaves to obey their masters. And of course the South didn't want an end to slavery because the it was agricultural, while the North -a lot more liberal- was industrial.

Trey said at May 1, 2014 5:24 AM:

Americans have an average IQ around 99 these days. Mexico's is about 85/86, which I believe is almost a standard deviation lower.

Even the worst European nation is a better place to live than almost anywhere in the low IQ third world. The White countries with problems today are the ones recovering from the ravages of Communism.

Check it out said at May 7, 2014 4:19 PM:

"Americans have an average IQ around 99 these days. Mexico's is about 85/86"

Yeah right. It would be nice if you quote your source or if it's just your belief advertised, or perhaps a hidden shallow racism.

Simply not true. Sorry, next one please.

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