The Impact of Trade Liberalization and the Global Economic Crisis on the Productive Sectors, Employment and Incomes in Mexico

Date period
17 December 2010

SummaryStructural reforms and the liberalization of foreign trade and investment have occurred all over the world. The majority of developing countries have embraced reforms that differ regarding the timing and speed of implementation but not in character. The economic model pursued has combined adjustment and stabilization reforms with the liberalization of foreign trade, increasing the level of competition in international markets.

As a result of their increased integration into the world economy, developing countries today are more exposed to the risks associated with external shocks. Indeed, most of them have suffered greatly from the decrease in global demand, the dr ying up of trade finance and the decline investment and remittances resulting from the recent financial and economic crisis. While several developing nations have shown early signs of recovery, the crisis may have reversed modest progress towards poverty alleviation. Furthermore, social indicators suggest that natural rates of unemployment are likely to be higher in the future, prompting concerns about possible jobless growth.

Mexico is a particularly interesting case. Starting in the early eighties, it gradually abandoned the import substitution model adopted in the decades before and liberalized its economy, adopting an "outward growth" model based on exports. Nowadays, Mexico is one of the most liberal mediumsized economies in the world, with the movement of goods, services and capital being practically free as a result of multilateral, regional and bilateral trade agreements. Yet, the effects of these reforms have been less positive than expected, with per capita GDP, productivity and employment virtually stagnant. In addition, the adjustment costs have grown and intensified during the receglobal economic and financial crisis. Indeed, the crises hit Mexico with particular force, severely contracting GDP growth and causing a rise in unemployment, poverty and financial inequality.

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SummaryStructural reforms and the liberalization of foreign trade and investment have occurred all over the world. The majority of developing countries have embraced reforms that differ regarding the timing and speed of implementation but not in character. The economic model pursued has combined adjustment and stabilization reforms with the liberalization of foreign trade, increasing the level of competition in international markets.

As a result of their increased integration into the world economy, developing countries today are more exposed to the risks associated with external shocks. Indeed, most of them have suffered greatly from the decrease in global demand, the dr ying up of trade finance and the decline investment and remittances resulting from the recent financial and economic crisis. While several developing nations have shown early signs of recovery, the crisis may have reversed modest progress towards poverty alleviation. Furthermore, social indicators suggest that natural rates of unemployment are likely to be higher in the future, prompting concerns about possible jobless growth.

Mexico is a particularly interesting case. Starting in the early eighties, it gradually abandoned the import substitution model adopted in the decades before and liberalized its economy, adopting an "outward growth" model based on exports. Nowadays, Mexico is one of the most liberal mediumsized economies in the world, with the movement of goods, services and capital being practically free as a result of multilateral, regional and bilateral trade agreements. Yet, the effects of these reforms have been less positive than expected, with per capita GDP, productivity and employment virtually stagnant. In addition, the adjustment costs have grown and intensified during the receglobal economic and financial crisis. Indeed, the crises hit Mexico with particular force, severely contracting GDP growth and causing a rise in unemployment, poverty and financial inequality.

This paper on ‘Trade Liberalization in Mexico: Impact of the Global Financial Crisis on Productive Sectors, Employment and Incomes’ by Alicia Puyana (FLACSO), analyzes the impact of trade reforms on the performance of the Mexican economy and focuses specifically on the aftermath of the crisis. It identifies the effects of the crisis with regards to the agriculture and manufacturing sector, but also describes the changes within the Mexican labour market. The paper not only shows the advantages and disadvantages of liberalization, but also gives concrete policy recommendations and identifies the role of development cooperation, particularly aid for trade, to improve Mexico’s post-crisis development strategies.

With this paper, which was published in combination with three other case studies (Chile, India, and South Africa), ICTSD aims to contribute to a knowledge based debate on the impact of trade liberalization and the economic and financial crisis on the trade and labour market sectors. These studies also aim to inform the debate on whether development assistance and aid for trade in particular, can help to mitigate different impacts of the trade liberalization process and the crisis on the labour market.
Foreword Structural reforms and the liberalization of foreign trade and investment have occurred all over the world. The majority of developing countries have embraced reforms that differ regarding the timing and speed of implementation but not in character. The economic model pursued has combined adjustment and stabilization reforms with the liberalization of foreign trade, increasing the level of competition in international markets.

As a result of their increased integration into the world economy, developing countries today are more exposed to the risks associated with external shocks. Indeed, most of them have suffered greatly from the decrease in global demand, the drying up of trade finance and the decline in investment and remittances resulting from the recent financial and economic crisis. While several developing nations have shown early signs of recovery, the crisis may have reversed modest progress towards poverty alleviation. Furthermore, social indicators suggest that natural rates of unemployment are likely to be higher in the future, prompting concerns about possible jobless growth.

Mexico is a particularly interesting case. Starting in the early eighties, it gradually abandoned the import substitution model adopted in the decades before and liberalized its economy, adopting an \"outward growth\" model based on exports. Nowadays, Mexico is one of the most liberal mediumsized economies in the world, with the movement of goods, services and capital being practically free as a result of multilateral, regional and bilateral trade agreements. Yet, the effects of these reforms have been less positive than expected, with per capita GDP, productivity and employment virtually stagnant. In addition, the adjustment costs have grown and intensified during the recent global economic and financial crisis. Indeed, the crises hit Mexico with particular force, severely contracting GDP growth and causing a rise in unemployment, poverty and financial inequality.

This paper on ‘Trade Liberalization in Mexico: Impact of the Global Financial Crisis on Productive Sectors, Employment and Incomes\' by Alicia Puyana (FLACSO), analyzes the impact of trade reforms on the performance of the Mexican economy and focuses specifically on the aftermath of the crisis. It identifies the effects of the crisis with regards to the agriculture and manufacturing sector, but also describes the changes within the Mexican labour market. The paper not only shows the advantages and disadvantages of liberalization, but also gives concrete policy recommendations and identifies the role of development cooperation, particularly aid for trade, to improve Mexico\'s post-crisis development strategies.

With this paper, which was published in combination with three other case studies (Chile, India, and South Africa), ICTSD aims to contribute to a knowledge based debate on the impact of trade liberalization and the economic and financial crisis on the trade and labour market sectors. These studies also aim to inform the debate on whether development assistance and aid for trade in particular, can help to mitigate different impacts of the trade liberalization process and the crisis on the labour market.

Ricardo Meléndez-Ortiz

Chief Executive, ICTSD