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European School of Advanced Studies in Cooperation and Development V INTERNATIONAL UNIVERSITY MASTER IN COOPERATION AND DEVELOPMENT The Mexican Outward Orientation Strategy for Growth Master Thesis of Stefania Martelli Based on the work accomplished during the internship held at UNCTAD, Division of Globalisation and Development Studies – Macroeconomic and Development Branch, under the supervision of Mr. Heiner Flassbeck – Senior Economist “… virginum Vestalium more, quae, annis inter official divisis, discunt facere sacra et, cum didicerunt, docent.” Seneca “De Otio” Introduction The 50s and 60s and in different degree the 70s are the years of import substitution strategies, especially in Latin America. By the end of these 30 years, the growing recognition of the severe allocative distortions associated with this growth strategy and the rising Washington Consensus, lead an increasing number of countries to adopt a more liberal external trade regime. According to the Washington Consensus programme of economic reform, one of the major expected outcomes of this strategy is the rapid expansion of exports from developing countries, including labour-intensive manufactures. The basic idea is that this will in turn provide economic growth, promote a greater international and domestic equality by equalising factor prices, raising real incomes of trading countries and making efficient use of the nation’s endowments. In few words, trade liberalisation is viewed as the route to create a better and healthier micro and macroeconomic environment. In this setting, the case of Mexico is particularly important as the country goes under massive trade liberalisation, along with a huge rise in foreign direct investment, both resulting from the radical “neo-liberal” economic reforms suggested by the wide spread Washington Consensus. Starting from the aftermath of the debt crisis in 1982, Mexico opens trade up first, in 1986, participating to the General Agreement on Tariffs and Trade (GATT) and later, in 1994, in the North American Free Trade Agreement (NAFTA). Moreover the Mexican government, during the late 1980s and beginning of the 1990s, drastically cuts its deficit, privatises state enterprises and relaxes decades of heavy government regulation including restriction on foreign trade and investment. Therefore, trade liberalisation during the 80s, initiates a series of market-oriented economic reforms among which NAFTA in 1994, can be considered the final touch. With NAFTA, Mexico establishes free trade pacts with two of the largest economies of the world, namely United States and Canada. The aim of all these policies is to lead to 3 a rapid expansion of exports, which would then absorb Mexico's ever-increasing labour force and promoting general economic growth. In a nutshell we can say that Mexico tries to pursue a growth strategy using exports boom deriving from trade liberalisation as the engine for growth. One of the most important outcomes of these series of outward looking policies, is the enormous increase of exports. Fig. 1: Mexico – Exports of goods and services as % of GDP 1960 –20001 % 35 30 25 20 15 10 5 1999 1996 1993 1990 1987 1984 1981 1978 1975 1972 1969 1966 1963 1960 0 Even with no explicit incentive or subsidies to exports, the devaluation of the peso after the debt crisis, up to 1987, 1 All the graphs presented in this paper, unless otherwise mentioned, are elaboration of data extracted by the 2002 World Development Indicators CD-ROM, World Bank. 4 helped their growth. Moreover, the depressed internal market resulting from the 1982 debt crisis induced the Mexican industry to look for external source of demand, which were fully reached with the NAFTA. As a result, Mexico's exports-to-GDP ratio triples since 1980 (see fig. 1). Taking a closer look at the structure of exports we clearly see that this increase is mainly due to the increase in manufacturing exports that, fuelled by foreign investment, account in the country's total goods exports from about 9% to 84% (see fig 2). Fig.2: Mexico – Structure of exports 1962 – 2000 100% 80% Manufactures Ores and metals 60% Agricultural raw materials 40% Fuel Food 20% 00 98 20 96 19 94 19 92 19 90 19 88 19 86 19 84 19 82 19 80 19 78 19 76 19 74 19 72 19 70 19 68 19 66 19 64 19 19 19 62 0% The other categories of exports on the contrary even if apparently decreasing, maintain the same level of quantity in millions of US$. We can therefore highlight that the sole remarkable cause of export boom is due to manufacture 5 boom which, even if bearing in mind the importance of Mexico's geographical neighbourhood in term of market size and absorptive capacity, still is truly exceptional. Until now the Mexican experience seems to follow what has been predicted by the advocates of the Washington Consensus. Unfortunately though, an element of major importance of this phenomenon is the inability of manufacture exports to harness its power in the overall economy. A simple but sensible measure of this effect is given by the comparison of average annual rate of growth of GDP, investment, employment, wages and productivity during two time spans: 1970-1981 and 1982-2000 (see fig 3). As we can see from the graph while export rate of growth in the second period is booming (from 7.8% to 14.1% average annual growth), GDP, manufacture, investment, employment, wages and productivity do not grow as much as the precedent time span. We shall refer to this phenomenon as the “de-linkages of a dynamic export expansion”. 6 Fig.32: The collapse of the export multiplier 1970-1981 and 1981-2000 average annual rate of growth 12% 12% 14.1 70-81 81-00 10% 10% 8% 8% 6% 6% 4% 4% 2% 2% 0% 0% exp* 1980 prices gdp mf* inv* emp wages* pdd exp = exports; mf = manufacturing sector; inv = investment; emp = employment; wages = remuneration paid to both blue- and whitecollar workers; and pdd = productivity. exports in both periods do not include oil. Manufacturing does not include 'maquila'. The source used for the investment figure (Central Bank) does not provide information for agriculture and utilities, and for the rest, there is systematic information only up until 1994; so, the investment growth figure in the second period refers to 19811994, and only includes mining, manufacturing, construction and services. Due to lack of data, wages are only included until 1999. It is therefore logical to attempt to answer these questions: 2 See Palma (2002) 7 why manufacture export growth has not been able to serve as the “engine for growth”? are there any macroeconomic policies, which can foster or undermine the dynamic transmission of growth from exports to the rest of the economy? We will try to find some answers to these questions analysing two facts: the low value added presented by the manufacture sector and the huge increase in imports that raced against exports. 8 Value added in the manufactures sector Regarding the first aspect as noted in UNCTAD TDR 2002, Mexico presents a situation where the surge in manufactures exports does not correspond to an increase in the value added of the sector (fig. 4). Even worst, value added in the manufacturing sector remains at very low levels. The stagnant value added presented in figure, can be attributed to the maquila industry (assembly production). Fig.4: Mexico – Export (X), Import (M) and Value Added (VA) of the Manufacturing sector 1980 - 2000 Billion $ 140 120 100 80 60 40 20 M X 19 98 19 96 19 94 19 92 19 90 19 88 19 86 19 84 19 82 19 80 19 78 19 76 0 VA Source: UNCTAD database In this particular sector Mexico presents a comparative advantage with respect to US: unlimited supply of cheap labour, along with the strategic geographical location and after 1994, NAFTA, and good infrastructure deriving from the 9 previous import substitution period. Having these comparative advantages, during 1981-1999, maquila exports grow faster than non-maquila (16% and 13% respectively)3 and, as this sector is practically entirely export oriented, output growth is also particularly high, as it is the growth of employment. On the contrary real wages and productivity is stagnating and in particular: the stagnation of productivity relates to the lack of incentives to invest in a sector that can otherwise grow by adding unlimited amounts of cheap labour while the stagnation of wages show the extent to which labour is freely available. The most relevant aspect of the manufacture story in Mexico is that taking a closer look at the export oriented manufacturing sector, excluding maquila, we can observe an equally evident collapse of the export multiplier: the nonmaquila export oriented sector of manufacturing presents almost the same features as the maquila one. As Palma highlighted both maquila and non-maquila sectors presents two main common aspects: they are both focussed on assembly-type operations with a little use of domestic inputs and in addition they present a significant increase in the manufactured import-economic growth elasticity. There is 3 These data on the division between maquila and non-maquila manufacture sector are provided by Palma (2002) 10 little doubt that these characteristics will restrict any attempt of the Mexican economy to foster growth through exports. Being things like that, we should try to analyse the reasons behind such phenomenon. As a step in order to provide some figures on the magnitude of the phenomenon, let’s just take a look at the net exports presented by the manufacture sector as a whole (see fig.5). Fig.5: Mexico – Net Exports of Manufactures 1981 –1999 5 Billion $ 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 0 -5 -10 -15 -20 -25 We take into account only the manufacture sector as we have seen that it is the most significant during the export boom and that it accounts for more than 80% of total exports in the 2000. During the whole period of trade liberalisation net exports are negative which means that manufacture imports and more than manufacture exports. 11 This situation is particularly strong in the sub-period 19872000 when imports decisively win the race against exports, presenting an astonishing increase with the peak of -23 billion US$ during 1993. A consideration on this data springs from the fact that the great majority of FDI that arrived in Mexico from 1980 to 1999 were destined in the manufacture sector and precisely many US Trans-national Corporations taking advantage of trade liberalisation first and then NAFTA, build their factories just across the border in order to take advantage of the numerous cheap labour that characterised Mexico. Those new “Mexican” firms used very little domestic products and import almost everything from abroad. ECLAC report on foreign investment in the export sector states: “… these [foreign] firms, which make intensive use of capital and intra-industry trade [i.e. outside Mexico], generally create few jobs for skilled works, and their linkages with the rest of the economy are still minimal” ECLAC 1999 Report Being this the case, we can understand how the other side of the growth strategy implemented by Mexico – attracting foreign direct investment to provide a stimulus for the internal market – failed in its purpose to promote growth. The mean through which FDI fosters economic growth is the increase of domestic investment, or at least if it does not 12 reduce it. This phenomenon of increasing domestic investment is called “crowd in” effect, the opposite, “crowd out”. In order to have a feeling on this effect, we will just take a look at the two variables – foreign direct investments and domestic fixed investment as percentage of GDP - to see how they behaved during the last thirty years (see fig. 5a). Fig. 5a: Mexico – Foreign Direct Investment and Gross Fixed Capital Formation as % of GDP 1970 – 2000 3,5 GFCF/GDP 30 25 20 3,0 2,5 2,0 15 1,5 1,0 FDI/GDP 10 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 1978 1976 1974 1972 1970 0 0,5 0,0 2000 5 Gross fixed capital formation (% of GDP) Foreign direct investment, net inflows (% of GDP) From the graph two elements are quite evident: FDI have increased enormously and fixed domestic investments after a sharp decline during the debt crisis of 1992, do not present any significant increase and remain at levels which are similar to those of pre-trade liberalisation. 13 This feeling of no clear effect or slight crowd out effect hinted by the graph, is in line with the study presented by Agosin – Mayer (2000) that found a crowd out effect in Latin America during the last three decades and also with the result of Week (2001) that showed a strongly positive relationship during 1970-1981, while non-significant in the 1980s and then negative in the 1990s. We can therefore conclude that the extraordinary dynamism of manufacturing exports not only has been unable to bring along the rest of the economy, but it has not even been able to deliver a dynamic rate in the manufacturing itself. This result is in line with the results found by Weeks (2001) where Mexico is classified among the Latin American countries in which export growth was either neutral with respect to non-export growth, or negatively related. From this situation we can state that Mexico, now irreversibly settled in the path of trade openness, runs the risk of getting locked into its current structure of comparative advantage with its stress on unskilled or semi-skilled labour intensive activities, thereby delaying the exploitation of potential comparative advantage in higher tech stages of production. This conclusion stands in the same vein as what expressed by UNCTAD TDR 2002: 14 “According to the UNCTAD/ECLAC study, efforts aimed at simply at attracting FDI through macroeconomic stability and passive investment policies run the risk of locking static advantages inside export platforms with minimal linkages to domestic industry. This risk is of getting locked in is particularly high where preferential production trade flows market inputs to are access be based that sourced on requires from a developed country partner.” UNCTAD TDR 2002 It is then legitimate to ask ourselves what were the macroeconomic policies implemented by the Mexican authorities during these years and how they affected, if so, this collapse of the engine for growth. In fact we suspect that monetary and fiscal policies must have played some role in the breaking down of the engine. If a government follows a purposeful demand-compression programme, as many Latin American governments did in the 1980s, we would expect the stimulating effect of exports on the rest of the economy to be quite low. Similarly, high interest rate credit rationing associated with monetary restrain should tend to foster the crowding-out of domestic investment by foreign investment. 15 Macroeconomic policies As we have briefly said from the 1940 to 1970 the dominant strategy in Mexico was import substitution - the use of public policy interventions to promote the domestic production of formerly imported manufactured products for the internal market. This strategy proved to be quite fructose in those years as it expanded the internal market for manufactured goods, increased investment in production for the internal market and rose income of producers; workers and managers. Unfortunately, throughout the 70s, this growth dynamic had outlived its forces to enhance growth and some sort of chance was somehow compelling. During the early 1970s Mexico tried to forestall the collapse of the import substitution regime through massive public expenditure finances by foreign debt, policy that resisted up to the 1976 when it collapsed with the devaluation crises. Rising interest rates, falling oil prices, and a US recession were the main external forces that put an end to that strategy in the early 1980s. By August 1982, Mexico announced that it could no longer service its huge external debt and the “debt crisis” was underway. Briefly the measures adopted by the Mexican government in the wake of the crisis was to drastically cut its fiscal deficit and began to run a surplus by the late 1980s. State enterprises were privatised and regulations including those on trade, were relaxed. This combination of austerity and liberalisation made 16 Mexico particularly interesting for the financial community which had invested heavily in the country and that in turn agreed to roll over the existing debt and eventually offered some modest debt relief under the US- sponsored Brady Plan of 1989. At the same time these policies caused drastic cuts in the standard of living for ordinary Mexican families. Real wages fell by between 30 and 50 percent and overall economic growth completely stagnated leading to increased unemployment, poverty and migration. In 1986, Mexico joined the General Agreement on Trade and Tariffs (GATT) committing itself to reduce its formerly severe restrictions on imports of most industrial products. Mexico did not give any explicit incentives or subsidies to exports but the sharp devaluation of the peso initiated in 1987 led exports to boom in the way we already mentioned. Still, economic growth could hardly took off presenting growth rate that did not reach more than 4% until 1990 (see fig.6) and wages as well as average living standards were at the pre-crisis level. It is in this context that rose the idea of NAFTA. Mexico hoped that NAFTA could work as the final big stimulus to growth, that the previous stabilisation policies, structural adjustment and trade liberalisation had failed to achieve. This stimulus was supposed to come from massive inflows of foreign direct investment (FDI) that would enhance Mexico’s export capabilities and generate an export-led boom. NAFTA 17 would guarantee that Mexico’s primary export market – the United States – would never be closed to Mexican exports. In few words the “value added” of NAFTA was not to lower trade barriers which were already very low, but to attract investment and impart a growth stimulus. Fig.6: Mexico – GDP annual growth % 1961-2000 14 % 12 10 8 6 4 2 0 19 61 19 64 19 67 19 70 19 73 19 76 19 79 19 82 19 85 19 88 19 91 19 94 19 97 20 00 -2 -4 -6 -8 We are now some years later from the sign of NAFTA and Mexico is still not performing such a high growth rate: what went wrong? The growth strategy followed by Mexico during the process of trade liberalisation during the late 80s and 90s presents an inconsistency that deal with the concomitant 18 implementation of trade liberalisation with an erroneous domestic policy to combat inflation4. Briefly we can say that together with the break down of trade barriers that led to a release of pent-up demand for imported consumer goods, the Mexican government began serious efforts to control the country's runaway inflation, as well as to entice back the "capital flight" that had left the country in the 1980s. These efforts included tight monetary policies that drove up real interest rate and thus made Mexican financial assets very attractive to both foreign and national investors. The result of this combination of liberalisation and austerity produced a big flow of "hot money" into Mexico's emerging financial market in the early 1990s. The same set of policies caused the Mexican peso, which had been devalued after the 1982 debt crises reaching the lowest peak in 1987, to begin appreciate again. As part of the anti-inflationary campaign, the Mexican government restricted the rate of nominal depreciation of the peso to below the differential in inflation rates between Mexico and United States. This policy of using the exchange rate as a nominal anchor kept the prices of imported good from rising, which helped to contain inflation but made imports artificially 4 Apart from affecting negatively trade liberalization these sets of policies really helped bringing inflation down (see table Mexico at a glance) 19 cheap for domestic consumer at the same time as import barriers were falling (see fig 7). As the peso began to appreciate again in real terms after 1987, import growth raced ahead of export growth thus putting a drag on overall Mexican growth. So in late 80s and early 90s while the financial market were booming, real economic growth continued to be disappointing as the rising trade deficits kept the Mexican economy from expanding at an adequate rate. Fig 7: Mexico Real Effective Exchange Rate and Trade Balance/GDP 1961 – 2000 Trade Balance/GDP 12 200 10 180 8 160 140 6 120 4 100 2 80 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 -2 1980 0 60 40 -4 20 -6 0 Trade Balance / GDP REER 1995=100 Another important element in the Mexican story seems to be the “confusion” made between trade and investment liberalisation with the adoption of an outward-oriented strategy. In this respect, a comparison with one of the so- 20 called Asian Tigers, Republic of Korea, is quite illuminating. As a matter of fact, East Asian experience show that trade and investment liberalisation and outward-oriented strategy are far from equivalent. In the case of Korea, export increase is a specific target of the national mission to develop and it is achieved by ad hoc indirect subsidies to national enterprises. From the 60s Korea has been quite far from wild trade liberalisation, using ISI to protect its industry from Japan, in a wide range of labour intensive industries, including cotton textiles. In the 70s the subsidisation continues to protect the new-born heavy industry. In the 80s and 90s it was necessary for Korea to move to the more complex technology based sector and therefore this sector underwent some sort of indirect subsidisation. An important feature of this subsidisation is the imposed discipline of the government on subsidy recipient. This discipline consists on imposing performance standards on export targets, transparency and other easy monitored performance indicators. In a nutshell, Korea faced this trade off either competing in the world market by lowering wages or deviate somehow from laissezfaire. Korea chose the second solution, which implemented through subsidies along with the necessary discipline and performance standards imposed on business in exchange on government support. This choice paid off. If we sketch the graph on manufacturing value added (see fig.8) we find that along with its export booming, value added grows at an 21 incredible pace, production-trade particularly configuration after of the 1988 major resembling industrial countries. Along with selective export subsidies, Korea applies selective imports controls: imports that do not seriously threaten the competitiveness of domestic industry, are quickly liberalised while the one that seriously threaten the competitiveness of advanced-technology industries are held back. Although this system is estimated to cover only about 2.2 per cent of tradable by 1989 it covered the strategic imports that Korea was planning on developing into leading sectors in the future (Amsden). Fig. 8: Korea – Exports (X), Imports (M) and Value Added (VA) of the manufacturing sector 250 Billion $ 200 150 100 50 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 19 78 19 80 19 82 19 84 19 76 0 M X VA Source: UNCTAD database 22 In addition to this system of indirect subsidies, Korea thanks to the accurate adjustment of nominal exchange rate prevented any significant overvaluation of the won currency while fiscal policy, though conservative was never allowed to put a break on the growth process. The result of these sensible policies both on trade and domestic macroeconomic policy, is a positive and stable increase GDP annual growth (see fig. 9) throughout the 80s and 90s (excluding the 1997 crisis which was soon recovered) together with a growing rate of investment especially during the 80s. Fig 9: Mexico and Korea – GDP annual growth % 1960 – 2000 20 % 15 10 5 19 60 19 62 19 64 19 66 19 68 19 70 19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 0 -5 -10 KOREA On the contrary the Mexico Mexican strategy of trade liberalisation opens up the economy to huge increase in imports before domestic producers have the time to adjust to 23 new competition and it did not guarantee that export growth took place in the areas that are most beneficial to long-run development of the domestic economy. Let’s go back for a moment to the use of the exchange rate as an anchor to fight the chronic inflation and its compatibility with the liberalisation paradigm. Fixing the exchange rate more or less tightly as Mexico did, necessitates the liberalisation of capitals in order to count on foreign influx of currencies to build enough reserves to defend it. In a similar vein the lowering of trade barriers is also a requisite in order to allow increased imports to place more pressure on domestic companies and thus discourage them from raising their prices whilst encouraging them to achieve higher productivity. All this is in line with the commonly held view that the Latin America crisis was primarily caused by below standards of production efficiency due to highly protectionist policies of import substitution. The influx of foreign capital, favoured by the low risk scenario drawn by the stable exchange rate, is both support and reinforcement to the real valorisation of the domestic currency. This in conjunction with contemporary trade liberalisation produces the dramatic increase in imports, unaccompanied by a corresponding increase in exports as we have observed in the case of Mexico. On the contrary Asian countries before the outbreak of the crisis presented high 24 growth rate both in import and export sectors. The loss of its competitive edge is also a reflection of the fact that Latin America is the only region in which the USA, with its huge external deficit, is capable of generating an export surplus. Moreover the loss of competitiveness suffered by Mexico and in general Latin America is also mirrored in the qualitative changes undertaken in domestic production structures, in other word the weakening of the industrial depth represented by the growing of the maquila sector. This hints that the “new” competitiveness possible for Mexico is only achievable at the cost of low wages which in the long run will cause a deterioration of job quality and further exacerbation of the income distribution patterns along with the erosion of the already highly fragmented social system. 25 Conclusion Starting from the early 1980s and throughout the 1990s Mexico implemented the prevailing development strategy that placed emphasis upon “outward orientation” and in particular on export growth and foreign direct investment. Mexico followed this path through trade and capital account liberalisation both greatly sponsored by the Washington Consensus. Following such school of thought, one would expect growth to be transmitted through exports imparting dynamism to the economy as a whole and by foreign direct investment stimulating increased total investment in the economy or at least, not reducing it. This seems not to be the case of Mexico which saw a huge rise in exports and foreign direct investment but did not exhibit any significant increase in GDP growth, rather a decline. In this paper we tried to give an answer to the trade liberalisation part of the story, as for what concern capital account liberalisation should need a deeper insight. In particular we investigated over the nexus linking export and FDI in export sector to the overall economy. Two major inconsistencies can be found in the Mexican policies. First, the very same trade strategy was internally inconsistent as favoured a sector like maquila, that presented hardly any advantages for Mexico and that therefore was a poor candidate to be the “engine for growth”. Second, trade policies was supposed to enhance economic growth through 26 foreign business but at the same time domestic macroeconomic and international financial policy was hostile to industrial growth. As this case of Mexico highlighted, we can say that even if there is a growing consensus on the importance of export growth in the path toward rapid economic growth, there is still disagreement on how such export growth should be pursued. As the case of Mexico against Korea suggests trade policy needs to be put on the creation of new comparative advantages and this requires selectivity in trade policy along with a sensible exchange rate policy. 27 MEXICO AT A GLANCE KEY ECONOMIC RATIOS and LONG-TERM TRENDS GDP (US$ billions) Gross capital formation/GDP Exports of goods and services/GDP Gross domestic savings/GDP Gross national savings/GDP Current account balance/GDP Interest payments/GDP Total debt/GDP Total debt service/exports STRUCTURE of the ECONOMY (% of GDP) Agriculture Industry Manufacturing Services Household consumption expenditure General government consumption expenditure PRICES and GOVERNMENT FINANCE Domestic prices (% change) Consumer prices Implicit GDP deflator Government finance (% of GDP) Current revenue Current budget balance Overall surplus/deficit 1980 223,5 27,2 10,7 1990 262,7 23,1 18,6 1999 479,4 23,5 30,9 2000 574,5 23,3 31,4 24,9 22,4 -4,7 22 20,3 -2,8 21,9 20,5 -3 21,5 20,1 -3,2 2 25,7 44,4 2,2 39,8 20,7 2,1 35 25,1 2 26,2 30,2 1980 9 33,6 22,3 57,4 65,1 1990 7,8 28,4 20,8 63,7 69,6 1999 4,7 28,8 21,1 66,5 67,1 2000 4,4 28,4 20,7 67,3 67,5 10 8,4 10,9 11 1980 1990 1999 2000 26,4 33,4 26,7 28,1 16,6 14,9 9,5 10,9 15,1 3,4 -3 15,3 -0,1 -2,5 13,8 .. -0,1 .. -1,6 .. 28 TRADE (US$ millions) Total exports (fob) Food Agricultural raw materials Fuels Ores and metals Manufactures Total imports (cif) Food Agricultural raw materials Fuels Ores and metals Manufactures BALANCE of PAYMENTS (US$ millions) Exports of goods and services Imports of goods and services Net trade in goods and services Current account balance Financing items (net) Changes in net reserves 1980 18.031 2.245 419 12.050 1.166 2.148 22.144 3.571 660 438 886 16.579 1990 1999 2000 40.711 136.391 166.424 4.741 7.304 8.189 635 852 924 15.301 9.742 16.074 2.319 2.007 2.223 17.705 116.179 138.915 43.548 148.648 182.635 6.373 7.864 8.622 1.538 2.187 2.468 1.663 3.181 5.378 1.264 3.350 3.871 32.702 128.167 158.016 1980 1990 1999 2000 22.622 48.805 148.125 180.211 27.601 51.915 156.445 191.895 -4.979 -10.422 11.239 -817 -3.110 -8.320 -11.685 -7.451 -14.324 -18.157 9.754 18.602 25.307 -2.303 -4.278 -7.150 All data are from 2002 World Development Indicators CDROM, World Bank 29 List of figures Fig. 1: Mexico – Exports of goods and services as % of GDP 1960 –2000 _________________________________________________________ 4 Fig.2: Mexico – Structure of exports 1962 – 2000 ___________________ 5 Fig.3: The collapse of the export multiplier 1970-1981 and 1981-2000 __________________________________________________________ 7 Fig.4: Mexico – Export (X), Import (M) and Value Added (VA) of the Manufacturing sector 1980 - 2000 ____________________________ 9 Fig.5: Mexico – Net Exports of Manufactures 1981 –1999 __________ 11 Fig. 5a: Mexico – Foreign Direct Investment and Gross Fixed Capital Formation as % of GDP 1970 – 2000 _______________________ 13 Fig.6: Mexico – GDP annual growth % 1961-2000 _________________ 18 Fig 7: Mexico Real Effective Exchange Rate and Trade Balance/GDP 1961 – 2000 _________________________________________ 20 Fig. 8: Korea – Exports (X), Imports (M) and Value Added (VA) of the manufacturing sector ________________________________________ 22 Fig 9: Mexico and Korea – GDP annual growth % 1960 – 2000 ____ 23 30 Bibliography Agosin, Manuel R. and Ricardo Mayer (2000) Foreign Investment in Developing Countries: Does it Crowd in Domestic Investment? 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