Public Capital Formation and Labor Productivity Growth in Mexico

By Ramirez, Miguel D. | Atlantic Economic Journal, December 2002 | Go to article overview

Public Capital Formation and Labor Productivity Growth in Mexico


Ramirez, Miguel D., Atlantic Economic Journal


Introduction

The demise of Import-Substitution Industrialization (151) in Latin America has led many countries of the region to adopt an outward-oriented, market-based strategy of economic growth and development. Chile was the first major country of the region to adopt an outward-oriented strategy under the regime of Augusto Pinochet during the decade of the seventies, and after the onset and aftermath of the debt crisis in the early eighties, other major countries of the region began to follow suit by dismantling their state-owned enterprises and deregulating their economies. (1) Mexico began this process of economic stabilization and structural reform in earnest following the country's entry into the GATT in 1986, and accelerated and intensified it under the administration of Carlos Salinas de Gortari (1988-94), culminating with the passage of the North American Free Trade Agreement in November of 1993. (2)

The stabilization of the Mexican economy and the withdrawal of the state from key sectors of its economy, such as airlines, banking, mining, steel, and telecommunications, has been welcomed by both domestic and foreign investors, as well as free trade advocates, economists, and government officials working for the multilateral agencies. In order to stabilize its economy during the transition period, the Mexican government, in the face of binding financial constraints, has had to meet the stringent performance requirements recommended by the multilateral institutions. This has often entailed the slashing of real government spending across the board to meet prescribed targets for the public sector deficit as a proportion of GDP, the removal of trade restrictions in the form of tariff and non-tariff barriers, the raising of real interest rates and the restriction of credit, and last but not least, the devaluation of the domestic currency in real terms.

Several prominent investigators have observed that the nature, timing, and sequencing of these expenditure-changing and expenditure-switching policies are critical in determining their short-term success. Lack of credibility and or inappropriate timing or sequencing can lead to unforeseen and unwelcome economic and political effects as evidenced in spectacular fashion by the Mexican peso crisis of 1994-95 (see Dornbusch and Werner [1994]). Moreover, a number of regional economists have also begun to focus on the long-term economic (negative) effects associated with the severe stabilization and adjustment measures implemented by the Mexican government, as well as other countries in Latin America and the Caribbean (see Calva [1997a]; Pastor [1989]; Sunkel [1994]; Ramirez [1998]; and Taylor [1997]). Nowhere is this more evident than in the disappointing and erratic behavior of Mexican private capital formation during the past decade and a half. Table 1 below shows that in the case of Mexico, the share of investm ent has fallen relative to its 1980 level, and the country's 1994-95 economic crisis drove the proportion to a dismal level of 16.9 percent in 16.9 percent in 1996. (3)

What is particularly worrisome about these figures is that most Mexican (and regional) economists believe that it is absolutely essential for Mexico--and other countries of Latin America--to improve its investment performance if it is going to lay the groundwork for rapid and sustained economic growth, as well as create future employment opportunities for its rapidly expanding labor force (see Rosales [1996] and Moguillansky [1996]).

A number of investigators have cited the dramatic fall in public investment in economic and social infrastructure, brought about by the need to meet the stringent fiscal deficit targets of the stabilization program, as one possible factor in explaining the poor investment performance of Mexico and other Latin American countries. Table 1 shows that public investment spending as a proportion of GDP fell precipitously from 12. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Public Capital Formation and Labor Productivity Growth in Mexico
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.