Crisis", I reviewed the following main sources of information: (a) official documents from the Me... more Crisis", I reviewed the following main sources of information: (a) official documents from the Mexican government, which presented antecedents, contents and goals of the economic policies applied in the country since the late 1980s; (b) speeches by top government officials reflecting their views on critical issues concerning the topic under research; (c) publications from the
This paper investigates why the average growth rate of the Mexican economy has been so disappoint... more This paper investigates why the average growth rate of the Mexican economy has been so disappointing since the trade liberalization of the late 1980s. Some previous work has argued that the growth slowdown can be attributed to a tightening of the balance of payments constraint on Mexico's growth, due to a rise in the income elasticity of import demand that outweighed the increase in export growth after trade liberalization. However, such an aggregative approach ignores the distinction between imports of final goods and intermediate goods, which is important in Mexico due to the high intermediate import content of manufactures-especially those produced for export. To address this issue, this paper presents a disaggregated model of the balance of payments constraint with two types of exports (manufactured and primary commodities) and two types of imports (intermediate and final goods). The empirical results show that the balance of payments constrained (equilibrium) growth rate did not fall, but instead rose slightly post-liberalization, so this model cannot account for the actual growth slowdown. Instead, the analysis points to an important role for the real exchange rate, which is overlooked in the balance of payments constrained growth model, as well as internal obstacles and policies.
Este artículo estudia la disminución de la participación del trabajo en el ingreso (PLI) en Méxic... more Este artículo estudia la disminución de la participación del trabajo en el ingreso (PLI) en México durante el periodo de 1990 a 2015. En su mayor parte, esta reducción puede ser explicada por disminuciones dentro de los principales sectores de la economía (entre ellos las manufacturas y los de bienes comerciables y no comerciables), más que por una recomposición del valor agregado hacia sectores que tienen bajas participaciones del trabajo en el ingreso. En contraste con la agricultura, en la que la pli cayó debido a un desplazamiento de la fuerza de trabajo desde el autoempleo hacia el trabajo asalariado, en otras importantes áreas de la economía la disminución de la PLI se explica por reducciones en el sector de empleo asalariado. Las estimaciones econométricas indican que disminuciones paralelas en la participación del trabajo y la productividad relativa en los bienes no comerciables, así como en la participación del trabajo en las manufacturas de los Estados Unidos, desempeñaron...
con permiso de Elsevier. Los errores u omisiones son responsabilidad de los autores. [Traducción ... more con permiso de Elsevier. Los errores u omisiones son responsabilidad de los autores. [Traducción del inglés de Roberto Ramón Reyes-Mazzoni.]
This paper estimates a structural model of the balance of payments, with disaggregated exports (m... more This paper estimates a structural model of the balance of payments, with disaggregated exports (manufactures and other) and imports (final and intermediate), and a reduced form model of the trade balance for the Mexican economy. The analysis identifies structural changes in the composition of Mexico's trade and the parameters that affect it across five subperiods marked by statistical breakpoints. The results indicate that a tightening of the balance-of-payments constraint may account for the post-liberalization slowdown in Mexico's growth only during certain subperiods, and that the impact of real exchange rate changes on the trade balance has diminished, most likely as a result of the increasing integration of export industries into global supply chains. The results also suggest an asymmetry, whereby a country cannot sustain growth above the rate consistent with balance-of-payments equilibrium, as expected, but it can grow persistently below that rate when other constraints are more binding.
Previous studies have found that a tightening of the balance of payments (BP) constraint can expl... more Previous studies have found that a tightening of the balance of payments (BP) constraint can explain the slowdown in Mexico's growth after its trade liberalization in the late 1980s. This paper develops a disaggregated model of the BP constraint with two types of exports (manufactured and primary commodities) and two types of imports (intermediate and final goods). Econometric estimates (including tests for structural breaks) show that the BPequilibrium growth rate did not fall, but instead rose in the post-liberalization period, so this model cannot account for the country's growth slowdown. Instead, the analysis points to the need to consider the real exchange rate as well as internal obstacles and policies.
The paper studies the determinants of the relative unit labor cost (RULC) in the manufactures bet... more The paper studies the determinants of the relative unit labor cost (RULC) in the manufactures between Mexico and the US, and the effect of RULC on Mexican private investment. Seeking to detect persistent, “long-run” effects, the econometric estimations apply the bounds testing approach to quarterly data from the post-liberalization period in Mexico, 1988–2008. While the productivity-adjusted manufacturing real wage fell in Mexico, RULC nonetheless increased due to an even stronger fall in the US and the misalignment of the peso —with the latter resulting in a steady rise in Mexico’s exchange-rate-adjusted relative manufacturing prices. The estimations show that RULC affects private investment negatively, and thus that the upward trend in RULC contributed to the low levels of investment observed in Mexico. In addition to capital flows, RULC responds significantly to the peso–dollar real interest rate differential, indicating that the upward trend in RULC is partly explained by repeat...
We analyze some of the effects of the peso’s real appreciation on the output-inflation policy dil... more We analyze some of the effects of the peso’s real appreciation on the output-inflation policy dilemma. Thanks to the appreciation, it is possible to achieve simultaneously a higher real wage and a lower inflation rate without need of output loss. After the capital inflows that support the appreciation stop, though, the policy dilemma is stronger than initially, because of a rise in the country’s stock of foreign debt. We discuss the difficulties involved in trying to offset this effect through variations in the domestic interest rate and show that the positive influence from an improvement in inflation expectations is transitory. In contrast, higher levels of labor productivity tend to improve the inflation-unemployment trade-off permanently.
After decelerating for two years, in 2009 the Mexican economy suffered a contraction only matched... more After decelerating for two years, in 2009 the Mexican economy suffered a contraction only matched, in its modern history, by the one recorded in 1995, in the wake of the peso crisis of December 1994. As in the latter crisis, the economy immediately bounced back, posting positive growth in 2010. Compared with the sharp rebound of exports, though, the overall recovery was weak, with GDP and industrial production surpassing (barely, in the latter case) their pre-crisis levels only in 2011. Motivated by these observations, the paper studies the transmission channels behind the 2009 recession in Mexico, the reasons for the weakness of the 2010?2011 recovery, and ?based on that analysis? some of the risks the country faces for sustaining stronger economic growth in the future.
The Journal of International Trade & Economic Development, 2019
ABSTRACT While many studies have documented the positive effect the real exchange rate (RER) can ... more ABSTRACT While many studies have documented the positive effect the real exchange rate (RER) can have on the rate of economic growth in developing countries, the channels of this effect are not yet well understood. The paper contributes to this literature by studying the pass-through of the RER into aggregate relative profit margins in the manufacturing and whole tradables sectors with respect to non-tradables in Mexico during the period 1990–2017. Based on estimates from non-linear error-correction ARDL models, the paper shows the RER affects relative profit margins asymmetrically – with larger reductions after appreciations than increases after depreciations – and that this asymmetry comes from the asymmetric adjustment of both relative costs and to lower extent relative prices. The results support the hypothesis of an RER’s tradables-led economic growth channel and help explain why the RER may affect capital accumulation asymmetrically, with stronger negative effects from appreciations than the positive effects of depreciations, as reported in recent research on Mexico.
According to recent development studies, a depreciated real-exchange-rate (RER) level can increas... more According to recent development studies, a depreciated real-exchange-rate (RER) level can increase the rate of economic growth, particularly so in developing countries and in the medium run. But although many studies have supported this proposition, others have questioned it: a depreciated RER may facilitate but not ensure faster growth; or appreciations may hurt growth while depreciations play a more neutral role; or both appreciations and depreciations relative to an equilibrium level may in fact decelerate growth. Mexico, with its history of wide RER fluctuations and protracted appreciation trends, has not been immune to these controversies. But while different studies have reached contradictory results, none has tried to establish why this is so. The possible role of asymmetries, in particular, has not been properly studied. While there may be some consensus around the negative growth effects of appreciations, for example, the possibility of positive effects from depreciations remains more controversial.
The article studies the fall in the manufacturing output–capital (OC) ratio in Mexico in the post... more The article studies the fall in the manufacturing output–capital (OC) ratio in Mexico in the post-trade liberalisation period 1990–2015. From a classical perspective, a pattern of falling OC ratio, rising labour productivity and greater capital intensity can be interpreted as a case of Marx-biased technical change. A within–between-industry decomposition shows, however, that in Mexico the fall in the average OC ratio reflects not only within-industry technical change but also structural change, in the form of a change in the composition of the capital stock towards industries with low or declining OC ratios. Econometric estimations, moreover, show that within-industry technical change was not related to the initial level or change in domestic labour costs, as in the dominant interpretation of the sources of Marx-biased technical change, but was driven instead by Mexico’s industrial integration with the USA. Within-industry technical change—and convergence to US OC ratios—dominated in an early phase, but were replaced by structural change and divergence in a later phase, following the China shock of the early 2000s. Irrespective of the source of change in the average OC ratio, though, both within-industry technical change in the early phase and structural change in the late one tended to reduce the average profit rate in the Mexican manufacturing sector.
(inegi) de México. a Véase en el apéndice A información sobre el cálculo de la participación de l... more (inegi) de México. a Véase en el apéndice A información sobre el cálculo de la participación de las importaciones en los bienes intermedios.
The paper argues that the weak effect of exports on gdp growth in Mexico is partly explained by t... more The paper argues that the weak effect of exports on gdp growth in Mexico is partly explained by two features of the Mexican economy that arose subsequent to trade liberalization: the peso's continued real appreciation and the large and rising share of the maquila sector in manufacturing exports. The argument is developed through an analytical example for a stationary economy with no investment. As motivation for the example's main assumptions, the paper presents empirical evidence gathered from the country's Annual Industrial Survey and the estimation of cointegration equations for maquila and non-maquila intermediate imports. The empirical evidence shows that (a) exports are highly dependent on imports and thus benefit from trade liberalization, and (b) while real exchange rate changes can induce substitution between local and imported intermediate goods generally, this is not the case in the maquila sector.
Crisis", I reviewed the following main sources of information: (a) official documents from the Me... more Crisis", I reviewed the following main sources of information: (a) official documents from the Mexican government, which presented antecedents, contents and goals of the economic policies applied in the country since the late 1980s; (b) speeches by top government officials reflecting their views on critical issues concerning the topic under research; (c) publications from the
This paper investigates why the average growth rate of the Mexican economy has been so disappoint... more This paper investigates why the average growth rate of the Mexican economy has been so disappointing since the trade liberalization of the late 1980s. Some previous work has argued that the growth slowdown can be attributed to a tightening of the balance of payments constraint on Mexico's growth, due to a rise in the income elasticity of import demand that outweighed the increase in export growth after trade liberalization. However, such an aggregative approach ignores the distinction between imports of final goods and intermediate goods, which is important in Mexico due to the high intermediate import content of manufactures-especially those produced for export. To address this issue, this paper presents a disaggregated model of the balance of payments constraint with two types of exports (manufactured and primary commodities) and two types of imports (intermediate and final goods). The empirical results show that the balance of payments constrained (equilibrium) growth rate did not fall, but instead rose slightly post-liberalization, so this model cannot account for the actual growth slowdown. Instead, the analysis points to an important role for the real exchange rate, which is overlooked in the balance of payments constrained growth model, as well as internal obstacles and policies.
Este artículo estudia la disminución de la participación del trabajo en el ingreso (PLI) en Méxic... more Este artículo estudia la disminución de la participación del trabajo en el ingreso (PLI) en México durante el periodo de 1990 a 2015. En su mayor parte, esta reducción puede ser explicada por disminuciones dentro de los principales sectores de la economía (entre ellos las manufacturas y los de bienes comerciables y no comerciables), más que por una recomposición del valor agregado hacia sectores que tienen bajas participaciones del trabajo en el ingreso. En contraste con la agricultura, en la que la pli cayó debido a un desplazamiento de la fuerza de trabajo desde el autoempleo hacia el trabajo asalariado, en otras importantes áreas de la economía la disminución de la PLI se explica por reducciones en el sector de empleo asalariado. Las estimaciones econométricas indican que disminuciones paralelas en la participación del trabajo y la productividad relativa en los bienes no comerciables, así como en la participación del trabajo en las manufacturas de los Estados Unidos, desempeñaron...
con permiso de Elsevier. Los errores u omisiones son responsabilidad de los autores. [Traducción ... more con permiso de Elsevier. Los errores u omisiones son responsabilidad de los autores. [Traducción del inglés de Roberto Ramón Reyes-Mazzoni.]
This paper estimates a structural model of the balance of payments, with disaggregated exports (m... more This paper estimates a structural model of the balance of payments, with disaggregated exports (manufactures and other) and imports (final and intermediate), and a reduced form model of the trade balance for the Mexican economy. The analysis identifies structural changes in the composition of Mexico's trade and the parameters that affect it across five subperiods marked by statistical breakpoints. The results indicate that a tightening of the balance-of-payments constraint may account for the post-liberalization slowdown in Mexico's growth only during certain subperiods, and that the impact of real exchange rate changes on the trade balance has diminished, most likely as a result of the increasing integration of export industries into global supply chains. The results also suggest an asymmetry, whereby a country cannot sustain growth above the rate consistent with balance-of-payments equilibrium, as expected, but it can grow persistently below that rate when other constraints are more binding.
Previous studies have found that a tightening of the balance of payments (BP) constraint can expl... more Previous studies have found that a tightening of the balance of payments (BP) constraint can explain the slowdown in Mexico's growth after its trade liberalization in the late 1980s. This paper develops a disaggregated model of the BP constraint with two types of exports (manufactured and primary commodities) and two types of imports (intermediate and final goods). Econometric estimates (including tests for structural breaks) show that the BPequilibrium growth rate did not fall, but instead rose in the post-liberalization period, so this model cannot account for the country's growth slowdown. Instead, the analysis points to the need to consider the real exchange rate as well as internal obstacles and policies.
The paper studies the determinants of the relative unit labor cost (RULC) in the manufactures bet... more The paper studies the determinants of the relative unit labor cost (RULC) in the manufactures between Mexico and the US, and the effect of RULC on Mexican private investment. Seeking to detect persistent, “long-run” effects, the econometric estimations apply the bounds testing approach to quarterly data from the post-liberalization period in Mexico, 1988–2008. While the productivity-adjusted manufacturing real wage fell in Mexico, RULC nonetheless increased due to an even stronger fall in the US and the misalignment of the peso —with the latter resulting in a steady rise in Mexico’s exchange-rate-adjusted relative manufacturing prices. The estimations show that RULC affects private investment negatively, and thus that the upward trend in RULC contributed to the low levels of investment observed in Mexico. In addition to capital flows, RULC responds significantly to the peso–dollar real interest rate differential, indicating that the upward trend in RULC is partly explained by repeat...
We analyze some of the effects of the peso’s real appreciation on the output-inflation policy dil... more We analyze some of the effects of the peso’s real appreciation on the output-inflation policy dilemma. Thanks to the appreciation, it is possible to achieve simultaneously a higher real wage and a lower inflation rate without need of output loss. After the capital inflows that support the appreciation stop, though, the policy dilemma is stronger than initially, because of a rise in the country’s stock of foreign debt. We discuss the difficulties involved in trying to offset this effect through variations in the domestic interest rate and show that the positive influence from an improvement in inflation expectations is transitory. In contrast, higher levels of labor productivity tend to improve the inflation-unemployment trade-off permanently.
After decelerating for two years, in 2009 the Mexican economy suffered a contraction only matched... more After decelerating for two years, in 2009 the Mexican economy suffered a contraction only matched, in its modern history, by the one recorded in 1995, in the wake of the peso crisis of December 1994. As in the latter crisis, the economy immediately bounced back, posting positive growth in 2010. Compared with the sharp rebound of exports, though, the overall recovery was weak, with GDP and industrial production surpassing (barely, in the latter case) their pre-crisis levels only in 2011. Motivated by these observations, the paper studies the transmission channels behind the 2009 recession in Mexico, the reasons for the weakness of the 2010?2011 recovery, and ?based on that analysis? some of the risks the country faces for sustaining stronger economic growth in the future.
The Journal of International Trade & Economic Development, 2019
ABSTRACT While many studies have documented the positive effect the real exchange rate (RER) can ... more ABSTRACT While many studies have documented the positive effect the real exchange rate (RER) can have on the rate of economic growth in developing countries, the channels of this effect are not yet well understood. The paper contributes to this literature by studying the pass-through of the RER into aggregate relative profit margins in the manufacturing and whole tradables sectors with respect to non-tradables in Mexico during the period 1990–2017. Based on estimates from non-linear error-correction ARDL models, the paper shows the RER affects relative profit margins asymmetrically – with larger reductions after appreciations than increases after depreciations – and that this asymmetry comes from the asymmetric adjustment of both relative costs and to lower extent relative prices. The results support the hypothesis of an RER’s tradables-led economic growth channel and help explain why the RER may affect capital accumulation asymmetrically, with stronger negative effects from appreciations than the positive effects of depreciations, as reported in recent research on Mexico.
According to recent development studies, a depreciated real-exchange-rate (RER) level can increas... more According to recent development studies, a depreciated real-exchange-rate (RER) level can increase the rate of economic growth, particularly so in developing countries and in the medium run. But although many studies have supported this proposition, others have questioned it: a depreciated RER may facilitate but not ensure faster growth; or appreciations may hurt growth while depreciations play a more neutral role; or both appreciations and depreciations relative to an equilibrium level may in fact decelerate growth. Mexico, with its history of wide RER fluctuations and protracted appreciation trends, has not been immune to these controversies. But while different studies have reached contradictory results, none has tried to establish why this is so. The possible role of asymmetries, in particular, has not been properly studied. While there may be some consensus around the negative growth effects of appreciations, for example, the possibility of positive effects from depreciations remains more controversial.
The article studies the fall in the manufacturing output–capital (OC) ratio in Mexico in the post... more The article studies the fall in the manufacturing output–capital (OC) ratio in Mexico in the post-trade liberalisation period 1990–2015. From a classical perspective, a pattern of falling OC ratio, rising labour productivity and greater capital intensity can be interpreted as a case of Marx-biased technical change. A within–between-industry decomposition shows, however, that in Mexico the fall in the average OC ratio reflects not only within-industry technical change but also structural change, in the form of a change in the composition of the capital stock towards industries with low or declining OC ratios. Econometric estimations, moreover, show that within-industry technical change was not related to the initial level or change in domestic labour costs, as in the dominant interpretation of the sources of Marx-biased technical change, but was driven instead by Mexico’s industrial integration with the USA. Within-industry technical change—and convergence to US OC ratios—dominated in an early phase, but were replaced by structural change and divergence in a later phase, following the China shock of the early 2000s. Irrespective of the source of change in the average OC ratio, though, both within-industry technical change in the early phase and structural change in the late one tended to reduce the average profit rate in the Mexican manufacturing sector.
(inegi) de México. a Véase en el apéndice A información sobre el cálculo de la participación de l... more (inegi) de México. a Véase en el apéndice A información sobre el cálculo de la participación de las importaciones en los bienes intermedios.
The paper argues that the weak effect of exports on gdp growth in Mexico is partly explained by t... more The paper argues that the weak effect of exports on gdp growth in Mexico is partly explained by two features of the Mexican economy that arose subsequent to trade liberalization: the peso's continued real appreciation and the large and rising share of the maquila sector in manufacturing exports. The argument is developed through an analytical example for a stationary economy with no investment. As motivation for the example's main assumptions, the paper presents empirical evidence gathered from the country's Annual Industrial Survey and the estimation of cointegration equations for maquila and non-maquila intermediate imports. The empirical evidence shows that (a) exports are highly dependent on imports and thus benefit from trade liberalization, and (b) while real exchange rate changes can induce substitution between local and imported intermediate goods generally, this is not the case in the maquila sector.
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