Crisis and Competitiveness Why has Mexico grown so slowly since 2001? Mexico slow growth of Just 1. 4%/year was triggered by several factors. First of all, due to its geographical proximity and its membership in the NONFAT, Mexico is closed tied to the US economy. In 2001, this was hit by a double dip recession affecting the Mexican economy in a negative way. China entered in 2001 the WTFO, thereby being a direct competitor of Mexico exports to the US. Since Chinese companies could produce cheaper costs in a lot of sectors, Mexico lost comparative advantages and arrest share.
Also, Mexican economy was weakened by the HI IN virus, the greatest decrease of the oil price ever and a devastating drought. Due to the rising activity and power of organized crime, FAD was threatened and President Cauldron spend billions of Dollars to fight the cartels. Moreover, responsible for such a slow growth was a bad educational system as well as a weak institutional framework that was not able to deal with antitrust in an efficient way. Another factor that really hit, and still hitting, Mexico economy is that is under monopolies and oligopolies in several key industries, thereby leading to inefficiencies in the market.
Does Mexico benefit or suffer from its propinquity to the United States? The proximity to the US is a mix of advantages and disadvantages for Mexico. The Mexican economy depends on tourism and imports from the US. Due to its proximity, and the NONFAT agreement, Mexico is predestinated to be one of the greatest trading partners of the US, especially in key sectors like oil. However, this close link to the US economy put the Mexican economy in danger in the times of crisis in the US.
The recommit to the US is responsible for the rise of the cartels, since the US are the biggest consumer of drugs worldwide; therefore drugs have to pass Mexico from South America in order to stimulate the demand and gain the highest profits. The missals have to be considered carefully. On the one hand, they provided employment; on the other hand they do not boost the Mexican manufacturing sector and the development process of the Mexican economy since they are owned to 90% by US corporations; thus Just benefiting from low labor costs.
Due to the significant preferential in wages, up to 11% of the Mexican population migrated (half illegal) to the US making the remittances the major source of foreign exchange for Mexico, adding these to the advantages. What can the government do to make Mexico more competitive? Mexico has to strengthen the institutional system by fighting corruption and this is in line with the need for substantial improvements of the legal framework. Another thing would be to open up the economy, by doing that competitiveness will increase that will lead to more efficient processes and will boost innovation. Business By wayfarer