Mexico - Overview of economy

The Mexican economy is both complex and very much in transition. There are at least 3 transitions that are worth noting. The first is the economy's transition from an agricultural economy to an industrial one. In 1940, agriculture accounted for 19 percent of GDP and employed 65 percent of the labor force . However, in 1999 agriculture accounted for 5 percent of GDP and employed 23 percent of the labor force. In contrast, manufacturing and services accounted for 88 percent of GDP in 1999 and employed approximately 70 percent of the labor force. The most important catalyst for such a dramatic change is Mexico's involvement in World War II in the early 1940s. As a member of the Allies, Mexico began supplying its fellow Allies with war equipment and supplies and, because of the decreased availability of consumer goods from other nations, supplied its own population with consumer goods as well. Since then, both government and private citizens have furthered Mexico's industrial development.

The second transition that characterizes the Mexican economy is a shift from a closed to an open economy. Although after World War II the government pursued a successful policy of industrializing the economy, that policy was buttressed by efforts to keep the Mexican economy closed. For example, the government pursued a policy of encouraging Mexican manufacturers to engage in import substitution . Part of that policy required that the government set up barriers (such as tariffs ) to the importation of those same items. All of this changed in 1985 when the government decided to pursue a policy of promoting Mexican exports and decreasing barriers to imports into Mexico. This commitment to an open economy was crystallized when Mexico signed the North American Free Trade Agreement (NAFTA) in 1992. Under that agreement, Mexico has committed itself to eliminating the trade barriers that exist between it and the United States and Canada by the year 2009. At the time Mexico signed NAFTA, its economy was dominated by small to mediumsized companies. NAFTA opened the door for large U.S. and Canadian companies to open branches or offices in Mexico, which would bring more jobs to the country.

The third transition that characterizes the Mexican economy is a change from an economy that pursues public ownership to one that pursues private ownership. In the 1970s and 1980s the government assumed a large amount of foreign debt and much of that money was used to purchase businesses—many of which were run inefficiently—by the government. The vast majority of these businesses were sold by the government in the 1990s. Although Mexico continues to wrestle with its foreign debt, which as of 1999 was US$161 billion, its debt is now a reasonable amount of debt when compared to that of other Latin American countries. For instance, Mexico's economy is 5 times as large as Venezuela's, but Mexico has only 4 times the amount of debt that Venezuela has.

At the beginning of the new millennium, the Mexican economy is vibrant, with fully functioning agricultural, services, industry, and banking sectors. Mexico has demonstrated to the world that it can sustain itself. But Mexico continues to be plagued by persistent problems of the poverty and underemployment of a large segment of its population. These problems pose the greatest challenges to the country's economic future.

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