Vol. 6 Num. 1 - GCG: Revista de Globalización, Competitividad y ...

Why isn’t Mexico on China’s Growth Path?100We can make a direct comparison of productivity in Mexico and China in the following manner.Given the production functions for each country, Y m= A mK m α L m 1−α and Y c= A cK c α L c 1−α , or in per workerterms and incorporating a human capital element, ym = A mk m α h m 1−α and y c= A ck c α h c 1−α ., divide the equationfor Mexico by the equation for China, rearrange to isolate the productivity ratios on the lefthandside and obtain:(6) A m= ( yAmy c ) k α ch 1−α ck α 1−α( mh m ).cThe calculations used to estimate productivity in equation (3) can be used to obtain bothA mand A c. The ratio of productivity in Mexico to China changed dramatically between 1980and 2007. Near the beginning of Chinese reforms and before the onset of the debt crisis inMexico, TFP was approximately 5 times higher in Mexico. A decade later, in 1990, it was stillmore than 3.5 times higher in Mexico, but by 2007 it was less than 30 percent higher—stilla significant difference, but a small fraction of the original difference.4. Location and institutionsAs is painfully clear from the previous section, Mexico and China have been on differentdevelopment paths since the 1980s. There are many potential explanations and certainlymultiple causes are at work, both for China’s success and Mexico’s relative failure to raiseits TFP. In this section, I look more closely at the interplay of geography and institutions.The biggest surprise in Table 1 is the lack of total factor productivity growth in Mexicothroughout much of the reform period. This is particularly surprising given that Mexico becamea reform leader in Latin America in the mid-1980s. Mexico signed the GATT agreementin 1986, privatized hundreds of enterprises, reformed its agricultural sector, became the firstrecipient of debt reduction under the Brady Plan in 1989, and implemented many of thereforms proposed under the Washington Consensus, as detailed in Lustig (1992), Edwards(1995), Stallings and Peres (2000), Moreno Brid and Ros (2009), and elsewhere. Given thatMexico followed the prescriptions of the World Bank, the IMF, US Treasury, and leading economicsdepartments and think tanks, it seems obvious to ask: What went wrong?There is no dearth of explanations for slower growth in Mexico; in fact, there are too manyexplanations. Beginning with the Washington Consensus and its implementation, should webelieve that there was not enough reform, or that the reforms were incorrectly implemented,or that they were the wrong reforms, or that other forces interfered, or perhaps somecombination of these? China’s reforms were far more successful at generating high rates ofeconomic growth, and while Mexico’s reforms pulled the country out of the debt crisis, theydid not raise the level of capital per worker, nor generate enough savings and investment tosignificantly reduce poverty or increase the growth rate of GDP per capita, nor consistentlygenerate positive growth rates of GDP per worker.GCG GEORGETOWN UNIVERSITY - UNIVERSIA ENERO-ABRIL 2012 VOL. 6 NUM. 1 ISSN: 1988-7116pp: 91-106