Question

How has the dramatic decrease in state-owned businesses in Mexico contributed to its growing GDP per capita?

Answer 1

Mexican president Porfirio Díaz brought unprecedented economic growth during the last quarter of the nineteenth century. This growth was accompanied by foreign investment and European immigration, the development of an efficient railroad network and the exploitation of the country's natural resources. Annual economic growth between 1876 and 1910 averaged 3.3%.[26]

Political repression and fraud, as well as huge income (in)equalities exacerbated by the land distribution system based on latifundios, in which large haciendas were owned by a few but worked by millions of underpaid peasants living in precarious conditions, led to the Mexican Revolution (1910–1920), an armed conflict that drastically transformed Mexico's political, social, cultural, and economical structure during the twentieth century under a premise of social democracy. The war itself left a harsh toll on the economy and population, which decreased over the 11-year period between 1910 and 1921.[citation needed] The reconstruction of the country was to take place in the following decades.

The period from 1930 to 1970 was dubbed by economic historians as the Mexican Miracle, a period of economic growth that followed the end of the Mexican Revolution and the resumption of capital accumulation during peacetime. During this period the nation adopted the economic model of import substitution industrialization (ISI) which protected and promoted the development of national industries. Mexico experienced an economic boom through which industries rapidly expanded their production.[27] Important changes in the economic structure included free land distribution to peasants under the concept of ejido, the nationalization of the oil and railroad companies, the introduction of social rights into the constitution, the birth of large and influential labor unions, and the upgrading of infrastructure. While population doubled from 1940 to 1970, GDP increased sixfold during the same period.[28]

President José López Portillo1976-1982, during whose administration the economy soared with the discovery of oil and then crashed when the price dropped.

Growth while under the ISI model had reached its peak in the late 1960s. During the 1970s, the presidential administrations of Echeverría(1970–76) and López Portillo (1976–82), tried to include social development in their policies, an effort that entailed more public spending. With the discovery of vast oil fields in a time in which oil prices were surging and international interest rates were low -and even negative- the government decided to borrow from international capital markets to invest in the state-owned oil company, which in turn seemed to provide a long-run income source to promote social welfare. This method produced a remarkable growth in public expenditure,[27] and president López Portillo announced that the time had come to "manage prosperity"[29] as Mexico multiplied its oil production to become the world's fourth largest exporter.[30]

Average annual GDP growth by period1900–19293.4%1929–19454.2%1945–19726.5%1972–19815.5%1981–19951.5%1983 Debt Crisis-4.2%1995 Peso Crisis-6.2%1995–20005.1%2001 US Recession-0.2%2009 Great Recession-6.5%Sources:[3][27][31][32]

In the period of 1981–1982 the international panorama changed abruptly: oil prices plunged and interest rates rose. In 1982, President López Portillo, (1976–82) just before ending his administration, suspended payments of foreign debt, devalued the peso and nationalized the banking system, along with many other industries that were severely affected by the crisis, among them the steel industry. While import substitution had been in use during an era of industrialization, by the 1980s it was evident that the protracted protection had produced an uncompetitive industrial sector with low productivity gains.[27]

President Zedillo (1994–2000) and President Fox (2000–06), of the National Action Party (Mexico), the first opposition party candidate to win a presidential election since the founding of the precursor of the Institutional Revolutionary Party in 1929, continued with trade liberalization. During Fox's administrations, several FTAs were signed with Latin American and European countries, Japan and Israel, and both strove to maintain macroeconomic stability. Thus, Mexico became one of the most open countries in the world to trade, and the economic base shifted accordingly. Total trade with the United States and Canada tripled, and total exports and imports almost quadrupled between 1991 and 2003.[39] The nature of foreign investment also changed with a greater share of foreign-direct investment (FDI) over portfolio investment.