International Economics of Mexico - Essay Example

International Economics - Mexico Cartels and international effects Mexico is ranked the ninth largest oil producer in the world as it exports close to three million barrels daily. This is however, less than Iran, Canada and China and more as compared to Kuwait, Venezuela and Nigeria. The oil monopoly in the country's Pemex, is owned by the state meaning that all the revenues proceed directly into federal government. This way, about a third of the income of the government depends on the oil. Other than investing in the development of new fields, the Mexican government treats Pemex more of a cash cow as it tries to maximize the short-term profits. This means that the production continues to fall by close to 25% across the previous ten years (Sverdrup 123). Mexico recently built its infrastructure for purposes of enhancing trade. In 2012, the trade cartels in the Mexican telecommunications industry were among the individuals in the world. However, their undertakings are nearly monopolies as they control close to 70% mobile phones, 70% broadband and 80% home phone lines. There are recent concerns that the lack of competition which continues to hamper growth. The levels of mobile-phone penetration across Mexico are only 85% which are similar to Iraq while the fast broadband connection costs are double those in Chile. Mexico's culture and economy are continually changing. For many years the economy of Mexico under-performed that of Brazil, but it has grown faster in the past year. Most Americans keep worrying about the illegal immigration even though Mexico needs to actually gain immigrants by itself. By facts, the birth rate of the country is trending downwards and could soon be way below that of the U.S. on this case, the violence linked to drug cartels is still upheld while Mexico is regarded to as a critical underground trade route for U.S. addicts (Leoce 29). In the last decade, Mexico’s priorities included upholding legal institutions, protecting the environment, providing better healthcare and improving the economic competitiveness of the country. This is also evidenced by the insuring of public security like military sweeps in cracking down the levels of organized crime as well as the corrupt local police. Part of these, the hunt for the drug cartels became most controversial. It also amounted to all-out war where there were increased levels of violence such as retaliation of the civilians by such cartels. Most Mexicans blamed the government for increasing violence and upsetting the cartels. There were a number of challenges facing Mexico's economy in the long run. The economy faced challenges such as the engraved need to modernize the labor and tax system laws, upgrade schools, health care services and roads as well as privatize the oil industry. These were expected to happen prior the foreign investors help in the extraction of more oil. However, it deprived the Mexican government more revenue (Sverdrup 73). Researchers have realized that Mexican research and development expenditure, skilled labor availability and the patents issued were radical indicators of various technological leadership ends that enabled the country to continue producing a comprehensive stretch of such technological innovations while still having found that such technology leaders focused on exporting hi-tech products and receiving imports of products of more standard. The Mexican peso crisis and international effects In the 1988 – 1994 term of the Salinas presidency in Mexico, the overall GDP growth was at an average of 3.3% annually which was a number exceeding the population growth rate (at 2%). However, it fell almost immediately for the other poor and developing countries. Even though the growth turned to be lagging behind at the pace of subsequent emerging markets, the Mexican politicians became even more willing to detail rapid economic expansion in terms of stability (Villareal 11). The new and almost stable element in this case had the Mexican economy entering 1994 with diverse aspirations of enjoining ranks of more industrialized and developed nations across the world. This way, the NAFTA trade arrangements as well as the country’s acceptance for the OECD proposal in beginning of the 1994 were considered to be signs upon which Mexico could finally arrive. On the other hand, the 1994 events would prove Mexico coupled with its economy would still develop more and more problems. There was emphasis on the weight which the international factor contributed in most of the decisions made. Mexico embraced intense change. Such goals for the changes could be based on the establishment of new relationships between various states and societies in efforts to place Mexico at advantageous positions within new international realities (Leoce 59). The Mexican economy diversification also known as the aperture impacted profound outcomes on the daily lifestyles. Before the relaxation of the strict trade restrictions, the available products remained the consumer goods produced at a national level. Increasingly, the import protection policies led to the oligopoly of prices for goods that were in mostly second rates in their nature. Through the dismantling of the standard trade formulations, comprehensive scopes of products across around the world were bought in more stores at such prices which were indicative of the competition of the existing exchange rates. In the end, the Mexican businesses started importing massive amounts for goods from all over the world. Between the years 1988 and 1994, the levels of imports rose from to $60 $19 billion which was an over 300% increase. While the people expected this increment to show up in various realms of consumer products, it was notable that a comprehensive majority of the Mexican imports were comprised of intermediate goods. Even though the number in this case is an indication of the increased levels of integration between Mexico and the US, it is a testament to the policies focusing on expanding the domestic industry (Villareal 211). The increment of imports which were expected to offshoot various liberalization policies which most did not expect became the current account deficit by encases that developed following policy shifts. By 1994, the total deficit could be estimated to be close to $28 billion which was about 8% of the GDP. For purposes of financing this deficit, Mexico engaged in full reliance on the voluntary movements for foreign capital onto the entire country. As a result of this growth potential, the high return rates and perceived stability enabled Mexico to be a landing point for foreign capital great deals in the early 1990’s. The great depression The 1930s Great Depression hit Mexican immigrants hard. Together with the food shortages and job crisis affecting the U.S. workers, Mexican Americans and pure Mexicans were faced with additional threats. While the unemployment hit pace in the U.S., hostility to Mexican workers grew and the government started programs for repatriating Mexicans back to Mexico. The immigrants were later offered train rides back while some went voluntarily even though a majority were tricked or coerced into such repatriation (Mcteer 98). The U.S. citizens could also be deported on the suspicion of being from Mexico. Hundreds of thousands of immigrants, mostly farm workers, were back to their country across the 1930s where the same workers had been recruited a while ago. Even though farming formed an integral employment source for Mexicans, by close of 1930s, the Mexican Americans could be seen established across the American workforce. The Mexican immigrants as well as their descendants were found in various parts of the industries for the Southwest which included ranching and mining. For this reason, America's growth in terms of rail network was important for the benefit of Mexican immigrants. Mexican entrepreneurs started investing heavily across the large-scale modernized agricultural estates across the northern railroad lines. On the other hand, the technocratic economic advisors in the Diaz dictatorship and the foreign investors invited into Mexico were satisfied with advances which the Mexican economy continued making across 1876 and 1910. The surface also focused on the popularity and discontent that far reached the boiling points (Milbourn 31). For this reason, the economic-political elite was scarcely noticeable with regards to the country's widespread levels of dissatisfaction that the Porfiriato political stagnation and the increased worker productivity demands during that time of stagnating led to decreased wages and deteriorated work conditions coupled with cruel repression for worker's unions by the army and police. This led to the highly unequal wealth distribution in Mexico. World War II how it affected Mexico directly and indirectly In the years subsequent to the World War II, the import-substitution program on a full-scale came in handy in stimulating the levels of output through boosting internal demand. Further, the government was in a position of raising import controls for most consumer goods while engaging relaxed environments on the capital goods. This is because they purchased using international reserves that were previously accumulated while in the war. The government expenditure was relatively heavy in terms of infrastructure. All through to 1950, the road network in Mexico continued expanding to 21,000 kilometers where which close to 13,600 was paved. The strong economic performance of Mexico continued growing into 1960s and the GDP growth was at an average of 7 percent and close to 3 per capita percentages (Sverdrup 24). The consumer price inflation hit an average of 3 percent each year. The manufacturing levels were set at the country's predominant growth sectors all through to the expansion of 7 percent levels on annual basis for purposes of attracting more foreign investment. The mining activities also grew through a rate of 4 percent annually where the trade percentage hit 6 percent and agriculture was at 3 percent. All through the year 1970, Mexico was able to diversify its base for export into becoming largely self-sufficient in terms of food crops, steel as well as most consumer goods. Even though the imports were high, a considerable amount of the capital goods used in the expansion procedure were limited to domestic production. The inward-looking development strategy in Mexico was focused on the production of sustained economic growth for close to 3 to 4 percent for the modest 3 percentage inflation each year until the 1970s from the 1940s. The growth rate in this case was a considerable sustenance by the increasing commitment of the government to improve primary education especially for the general population through the 1940s from the late 1920s (Young 64). The overall enrollment rates for the youth in the country increased threefold in the period and consequently when the generation attained employed in the 1940s where their economic outputs were more productive. In addition, the government was able to foster the consumer goods industries development directed towards improving the domestic markets through the imposition of high protective tariffs as well as other barriers for imports. The sharing of imports that were connected to subject to the licensing requirements also increased from 28 percent to a 60 percent average during the 1960s. The overall share for the total output that arose from agriculture as well as other primary activities continued declining during the various periods where services also remained constant. The government continued promoting various levels of the industrial expansion across the public investment in terms of agricultural, transportation infrastructure, and energy (Martinez-Diaz 94). Cities experienced rapid growth across these years where the reflection was towards the shift of employment into agriculture as well as industry and services. The overall urban population also increased at high rates after 1940. The urban labor force growth also exceeded the industrial employment growth rate where surplus workers took up service jobs that were low-paying. Mexican trade agreements and policies In 1876–1911, Mexico went through a rapid and highly unequal growth. Here, the economic advisors of the times reversed the decades-long opposition against the country's foreign investment through playing off the French, British, and U.S. governments and investors against each other and hence was in a position of maintaining a continued modicum for national independence. Considering "order and progress" which was its watchwords, Porfirian dictatorship went on to establish political stability as well as the least attractive images for social peace as well as the rule of law (Roett 97). The viewed apparent stability for the Porfiriato came along the increased levels of capital investment towards the financing of national development as well as modernization efforts. The rural banditry later came in handy in addressing the suppressed where in the relatively earlier decades; the local customs duties which continued hindering domestic trade could be abolished and the foreign investment levels in terms of mining would boom and the transportation and communications facilities modernize the Mexican railroad system. The Porfirian era’s economic growth was majorly concentrated across the northern parts of the country. This was the region that had the majority of concentration in terms of mineral resources as well as coincidentally having the region closer to the acquired Southwestern states. The U.S. entrepreneurs heavily invested in mineral refining operations, mining as well as the railroad system connecting northern Mexico with the entire U.S. While the railroad system encountered improvement, and the population continued growing across the western U.S., the long-distance commercial forms of agriculture turned to be viable forms of consideration where the U.S. The Mexican trade policies and agreements were based on aspects of regionalism and multilateralism. The relationship between multilateral and the regionalism trade systems became more relevant while the scope and number of regional initiatives grew (Moreno-Brid & Ross 109). For such a reason, Mexico was convinced that from its respective experience, regionalism was an important partner towards the achievement of greater levels of global liberalization while the levels of multilateral trade systems are as ambitious as previous regional agreements. The fundamental WTO objective in this case is having the global trade a free and fair trade system. In such an opinion, the creation of the Regional Trade Agreements ensures that such agreements address the correspondence of obligations across the WTO while still helping people work towards systems such as those that are mentioned. As trade flows freely, the aspect of multilateralism is deemed ambitious in line with regionalism. Mexico’s current economy and its international effects The recently unveiled “national development plan” has the Mexican government stressing on the extent to which the entire economy is performing below its potential. In close to 30 years, it grew at an average of 2.4% annually, while the productivity levels dropped by relatively 0.7% each year. Meanwhile, Chile grew by 4.9% each year and hence the productivity levels increased by close to 1.1% annually. The OECD also bemoaned the record of Mexico as it alone stood among the emerging markets into suffering the sustenance of the declining in measures of productivity in the previous decades. For purposes of considering GDP growth and rising the same from the current levels of potential to 3%, the productivity trends have been reversed through a number of structural reforms. Mexico’s main political parties that have been instrumental in the creation of pacts into promoting such changes aim for a 5% increment (Milbourn 153). The recent reforms focused at increasing the efficiency and effectiveness of education and reduction of job protection across the unionized workers are intended to be on the outlook for increased competition levels across variations in the telecommunications, banking and media industries which may boost growth in the event that they can be in full implementation. Mexico needs to venture further through calling for a combination of policies that overly reduce the various sizes of informal economies for which 60% ascertainment of employment languishes in small and inefficient companies. This is also an argument for stronger legal systems enforcing the competition laws, for instance, as well as the improvements of the criminal-justice process in making life safer for firms and individuals (Cypher & Wise 134). The Mexico economy is ranked the 13th world largest in nominal terms and 11th in its purchasing power parity. Since the year 1994 when it had a crisis, the administrations continued improving the macroeconomic fundamentals of the country. This means that Mexico did not expressly base its significance on the influence of the South American crisis in 2002. It maintained positive even though low growth rates after certain brief periods as evidenced in 2001 stagnation. However, Mexico was a nation which faced utmost impact of the 2008 recession where the Gross Domestic Product contracted by close to 6%. The investment-grade ratings issued for the sovereign debt of Mexico were adversely huge. Irrespective of the unprecedented macroeconomic stabilities that have reduced the levels of inflation as well as the interest rates in recording lows and high per capita income, there are enormous gaps remaining between the rural and the urban population, the southern and northern states, and the poor and the rich. Some of the challenges that the government faces include upgrading of infrastructure as well as the need to modernize the tax system as well as labor laws coupled with the income inequality reduction (Martinez-Diaz 179). The Mexican economy contains various modern service and industrial sectors that are rapidly developing coupled with increased private ownership. The recent administrations also expanded the levels of competition across ports, electricity generation, railroads, telecommunications, airports and natural gas distribution, with the goal of generally upgrading infrastructure. The fact that it is an export-oriented economy, close to 90% of trade activities in Mexico are under free trade agreements with up to 40 countries such as the European Union, Israel, Japan, and South and Central America. Mexico’s relation with world trade organization There are many aspects that contribute to the relationship between Mexico and the WTO. There are a number of considerations regarding the so-called emerging issues that are spread across the powerful impacts for the future in terms of the WTO as well as international trade. In all undertakings, Mexico was consistent with WTO's regulations in promoting world trade. The subjects which were particularly addressed in this case include the focus on the relationship between the environment and trade; the relationship between competition policies and trade; labor standards and trade; regionalism and multilateralism; as well as the progressive international trade liberalization (Moreno-Brid & Ros 149). Under the relationship between the environment and trade, part of the relatively emerging issues across the WTO's scope of work programs is the engagement between the environment and trade. In common with other countries, Mexico was in a position of gathering up to this moment today and was able to embrace great interest for the protection of the environment as well as the promotion of sustainable development. Further, economic analysis as well as available empirical evidence points at the fact that the best contribution for which the WTO makes is towards improving the entire environment to help in the achievement of high growth rates of the economy through the trade liberalization. Accordingly, it is observed that Mexico also considers that the use of trade measures in the achievement of environmental objectives cannot be not inefficient but rather dangerous due to the aspect of giving rise to subsequent use of protectionist purposes (Cypher & Wise 45). The competition and trade policies include the aspects of the reduction of tariffs as well as the elimination for non-tariff barriers resulting from the multilateral trade rounds as reflected in unprecedented world trade expansion. However, today, there are risks of having the benefits of such liberalization undergoing reduction through anti-dumping legislation abuse. Such legislation is supposedly aimed at preventing unfair trading practices and is increasingly applied in the replacement of the trade protection that it takes much hard negotiation in eliminating. Mexico is therefore in agreement to initiation of various WTO work programs in studying the existing relationship between competition and trade that includes in an analysis its terms of reference of addressing the anti-dumping measures through competition policies that ensure due access to various markets based on stability, surety and endurance of various conditions (Bowles & Moreno-Brid 66). The aspect of labor standards has Mexico convinced that the most appropriate forum for dealing with the issue is through the International Labor Organization that has much benefit for the accumulation of experience across decades of participation for the employers' and workers' associations. This is where there are issues of ensuring that partner countries that are yet to ratify such outstanding conventions face trading constraints with Mexico. One of the best ways through which WTO could continue helping to raise the living standards of people across the world is through the promotion of economic development on the basis of increased international trade. Raising issues of labor within the WTO provide excuses for the use of trade measures in terms of the protectionist purposes. Work cited Bowles, P & Moreno-Brid, J. C. The Political Economy of Mexico's Dollarization Debate. New York: United Nations Publications, 2006. Print. Cypher, J. M & Wise, R. D. Mexico's Economic Dilemma: The Developmental Failure of Neoliberalism. New York: Rowman & Littlefield Publishers, 2010. Print. Leoce, K. The Mexican Peso Crisis: Could it have been stopped before it began? Retrieved on 25th November 2013 from http://econc10.bu.edu/Ec341_money/Papers/Leoce_mexican_peso_crisis.htm Martinez-Diaz, L. The Global Economic Crisis and Mexico: Challenges for Recovery: Center for National Policy, 2009. Retrieved on 25th November 2013 from http://www.brookings.edu/research/speeches/2009/05/28-mexico-economics-martinez-diaz Mcteer, B. The Impact of Foreign Trade on the Economy: The New York Times, 2008. Retrieved on 25th November 2013 fromhttp://economix.blogs.nytimes.com/2008/12/10/the-impact-of-foreign-trade-on-the-economy/?_r=0 Milbourn, M. A. The Economic Impact of Orange County’s Airport’s Mexico Connection: Orange County Register. 2013. Retrieved on 25th November 2013 fromhttp://skift.com/2013/11/23/the-economic-impact-of-orange-countys-airports-mexico-connections/ Moreno-Brid, J. C., Ros, J. Development and Growth in the Mexican Economy : A Historical Perspective: A Historical Perspective. New York: Oxford University Press, 2009. Print. Roett, R. The Mexican Peso Crisis: International Perspectives: Foreign Affairs. 1997. Retrieved on 25th November 2013 from http://www.foreignaffairs.com/articles/52773/kenneth-maxwell/the-mexican-peso-crisis-international-perspectives Sverdrup, A. B. P. Forecasting Mexico's Democratic Transition: Scenarios for Policymakers. New York: CSIS, 2003. Print. Villareal, M. A. Mexican Economy After the Global Financial Crisis. New York: DIANE Publishing, 2011. Print. Young, E. V. Hacienda and Market in Eighteenth-century Mexico: The Rural Economy of the Guadalajara Region, 1675-1820. New York: Rowman & Littlefield, 2006. Print. Read More