Staff Report 453

Why Have Economic Reforms in Mexico Not Generated Growth?

Timothy J. Kehoe | Consultant
Kim J. Ruhl | University of Wisconsin and National Bureau of Economic Research

Published November 29, 2010

Following its opening to trade and foreign investment in the mid-1980s, Mexico’s economic growth has been modest at best, particularly in comparison with that of China. Comparing these countries and reviewing the literature, we conclude that the relation between openness and growth is not a simple one. Using standard trade theory, we find that Mexico has gained from trade, and by some measures, more so than China. We sketch out a theory in which developing countries can grow faster than the United States by reforming. As a country becomes richer, this sort of catch-up becomes more difficult. Absent continuing reforms, Chinese growth is likely to slow down sharply, perhaps leaving China at a level less than Mexico’s real GDP per working-age person.

Published In: Journal of Economic Literature (Vol. 48, No. 4, December 2010, pp. 1005-1027)

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