Transcript The China Syndrome: Local Labor Market Effects of Import

Mexico’s Competitive Position
in the New Global Economy
Gordon Hanson
UC San Diego and NBER
November 2012
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?
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Mexico’s growth has been sluggish…
Real GDP per capita (1986=100)
300
250
200
150
100
1986
1991
1996
2001
2006
2011
Year
Mexico
India
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Brazil
Indonesia
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Argentina
Thailand
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reducing the relative size of Mexico’s market
Country share of world GDP (PPP)
5
percent
4
3
2
1
0
1991
1995
1999
2003
2007
2011
Year
Mexico
India
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Indonesia
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Thailand
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Though even with tepid growth poverty has fallen
Population living on less than $2 a day
% of population
30
20
10
0
1992
1996
Mexico
Chile
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2000
Year
Brazil
Malaysia
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2004
2008
Argentina
Thailand
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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
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Domestic credit to private sector in Mexico is low
Domestic credit to private sector
60
% of GDP
50
40
30
20
10
0
1996
2001
2006
2011
Year
Mexico
India
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Indonesia
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An abundance of small firms keeps productivity low
Source: Hsieh & Klenow
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Mexico’s has low electricity output
Electricity production (kwh per dollar of GDP)
.3
.25
.2
.15
.1
.05
1985
1989
1993
Mexico
India
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1997
Year
2001
Brazil
Indonesia
Mexico’s Competitive Position
2005
2009
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Thailand
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Mobile penetration in Mexico is relatively low
Cellphone subscriptions per 100 people
125
100
75
50
25
0
1991
1995
1999
2003
2007
2011
Year
Mexico
India
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Thailand
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China’s export surge has restricted Mexico
Country share of world manufacturing exports
14
12
percent
10
8
6
4
2
1991
1996
Mexico
India
Hanson
2001
Year
Brazil
Indonesia
Mexico’s Competitive Position
2006
2011
China
Thailand
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Revealed comparative advantage I
-4
-3
-2
-1
0
1
Transport equip, machinery, electronics (SITC 7)
1962
1968
1974
Mexico
Hanson
1980
1986
Year
1992
China
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1998
Korea
2004
2010
Taiwan
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Revealed comparative advantage II
-2
-1
0
1
2
Apparel, footwear, furniture, toys (SITC 8)
1963
1968
1973
Mexico
Hanson
1978
1983 1988
Year
China
Mexico’s Competitive Position
1993
Korea
1998
2003
2008
Taiwan
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Revealed comparative advantage III
-3
-2
-1
0
1
2
Oil, coal, gas (SITC 3)
1962
1968
Mexico
Hanson
1974
1980
Canada
1986
Year
1992
1998
Malaysia
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2004
2010
Indonesia
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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
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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
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Mexico’s manufacturing cost disadvantage is declining
Annual earnings in manufacturing
5000
4000
3000
2000
1000
0
1996
1998
2000
2002
Mexico
India
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2004
2006
2008
China
Philippines
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China’s comparative advantage is shifting
China's top export products
8
% of China's total exports
7
6
5
4
3
2
1
0
1991
1995
1999
2003
2007
2011
Year
Footwear
Children's toys
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Completed computers
Telecom transmitters
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Mexico is keeping pace in educational attainment
Average years of education (25-29 year olds)
10
8
6
4
1990
1995
Mexico
India
Hanson
2000
Year
Brazil
Indonesia
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2005
2010
China
Philippines
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While Mexico is already highly urbanized…
Share of population in urban areas
80
percent
60
40
20
0
China
India
Indonesia
Mexico
United States
Emerging economies
1970
Hanson
1990
Mexico’s Competitive Position
2010
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there is still some room for growth in large cities
Share of population in cities > 1 million inhabitants
50
percent
40
30
20
10
0
China
India
Indonesia
Mexico
United States
Emerging economies
1970
Hanson
1990
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2010
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Urbanization and economic growth reinforce each other
.04
Growth in urban population and growth in GDP
LAO BTN
.03
LSO
NPLBFA
.02
GNB
CHN
IDN
AGO TTO
-.01
0
.01
YEM
VNM
MOZ
SLB GMB MLI BWA
MYS
ALB
KEN DZA TZA
GHA BGD
NGA
PAN CPV
NAM
UGA
MDG
MWI OSS
ETH
TGO VUT
SLV
CIVCMR BEN
HND
CRI
PRY
DOM
GIN
FJIPRTSST
GAB KIR
ECU
IND
NLD
GTM
BOL
TUR
MNG
NOC
ZAF
VCT
SLE
PAK
JPN
MAR
LBR
COG
GRD
PSS
SDN
SUR
FRA
BRN
THA
NER
JOR
BRA
SYR TUN
MEA
BLR
KOR
ARB
PER
SRB
VEN
OMN
COL
NOR
CSS
NIC
BGR
MEX
USA
SEN
NAC
SYC
TKM
SAU
CHL
HRV
ARE
EMU
ARG
CAFBHS
FIN
CYP
JAM
CAN
LUX
HUN
MLT
TCD
AUS
GRC
MRT
URY LBN
ISL
UKR
TON
ESP
AUT
MKD
DNK
SWE
ITA
NZL
GBR
ISR EGY
BEL
DEU
CHE
BHR
MDA
COM
RUS
PHL
SGP
POL MAC
AZE
ROM
SVN
LTU
DMAHKG
ZMB
LVA
CZE
SVK
GEO
GUY
KAZ
ARM MUS
BLZ
WSM
KGZ
SWZ
KNA
UZB
LKA
FSM
ATG
TJK
PNG
-.05
Hanson
0
.05
Annual growth in per capita GDP
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.1
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Digital connectedness is ahead of income growth
Cellphone penetration and average income
-2
0
2010
-4
2010
-6
2000
-8
2000
7
Hanson
8
9
log per capita GDP
Mexico’s Competitive Position
10
11
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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
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