Mexican Economy

Recently, there have been lots of newspaper and public figures criticizing the policies implemented by the Mexican government in order to lessen the impact of the global crisis in Mexico. The comparisons between Brazil and Mexico are inevitable: how is it possible that the Mexican economy has contracted 7% and the Brazilian only 0%? Moreover, why was Mexico the worst Latin American country dealing with the global financial crisis?

First of all, let's list some facts. According to the National Institute of Statistic and Geography (INEGI), Mexican exports are heavily dependent on the US market (75% of its exports are to the States). In Mexico, the states with the highest rates of economic growth (above 4%) are the northern ones: Baja California, South Baja California, Chihuahua, Coahuila, Nuevo León, Sonora, Tamaulipas as well as Aguascalientes and Quintana Roo, which is in the south. The northern states, which are the ones more integrated with the US economy, are export led economies, such as Aguascalientes and Quintana Roo, which is a famous resort state dependent on US tourists.

Now, taking into account that fact (that the Mexican states which are leading the economic growth in Mexico are export oriented economies with the US as the main destiny of its exports). It is not surprising that the Mexican economy has experimented that kind of economic contraction. In South America, there is no state so dependent on the US market like Mexico. The solution would be to diversify trade, but since the end of the XIX century, Porfirio Díaz, a Mexican "dictator", stated that diversifying the trade was a necessary condition in order to reduce the dependence of the Mexican economy on the United States.

If it happened that the Mexican economy would increase its net output following an export oriented solution, it would be through an increase in exports to the USA. There are trade models based on the fact that bigger economies tend to "attract" the exports from nearer countries. Unless Mexico manages to create goods which are not demanded from citizens in the United States -or strengthen its internal market-, Mexico will not be able to avoid the effects of the US crises.