Review of “Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty”

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Jan 272014

Every so often a book comes along that shakes up established wisdom and forces us to rethink our viewpoints and beliefs. The latest such book to cross my desk is Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty by Abhijit V. Banerjee and Esther Duflo, published by publicaffairs in 2011.

poor-economicsThis is a worthy read for anyone interested in development theory, policy, practice and economics. The authors are professors of Economics at the Massachusetts Institute of Technology (MIT) and co-founded the Abdul Latif Jameel Poverty Action Lab (J-PAL). Their book reports on the effectiveness of solutions to global poverty using an evidence-based randomized control trial approach.

Banerjee and Duflo argue that many anti-poverty policies have failed over the years because of an inadequate understanding of poverty. They conclude that the battle against poverty can be won, but it will take patience, careful thinking and a willingness to learn from evidence.

The authors look at some of the unexpected questions related to poverty that empirical studies have thrown up, such as :

  • Why do the poor (those living on less than 99 cents a day) need to borrow in order to save?
  • Why do the poor miss out on free life-saving immunizations but pay for drugs that they do not need?
  • Why do the poor start many businesses but do not grow any of them?

The book is supported by an outstanding website that includes:

  • Introductions to each chapter
  • Maps showing cited studies with links to original sources
  • Data and figures used with interactive data tools
  • A “What Can You Do” page with links to major organizations working in the field or for the problem discussed in the chapter

The website’s links to research papers mentioned in the book include four studies related to Mexico:

1. Do Conditional Cash Transfers Affect Electoral Behavior? Evidence from a Randomized Experiment in Mexico, by Ana L. De La O.

The evidence comes from the pioneering Progresa, the original Mexican conditional cash transfer (CCT) program (since repackaged as Oportunidades).  This CCT program led to a 7% increase in turnout and a 16% increase in the  incumbent vote share, with clear implications for politicians in areas where CCT programs reach a large percentage of voters.

2 School Subsidies for the Poor: Evaluating the Mexican Progresa Poverty Program, by T. Paul Schultz of Yale University (August 2001).

This study considered how a CCT program affected school enrollment. The CCT program increased enrollment in school in grades 3 through 9, with the increase often greater for girls than boys. The cumulative effect was estimated to add 0.66 years to the baseline level of 6.80 years of schooling.

3 Experimental Evidence on Returns to Capital and Access to Finance in Mexico, by David McKenzie and Christopher Woodruff (March 2008)

Microenterprises are often unable to access suitable financing, even though they are responsible for employing a large portion of the total workforce. This experiment, which gave cash and in-kind grants to small retail firms, demonstrated that this additional capital generated large increases in profits, with the effects concentrated on those firms which were more financially constrained. The estimated return to capital was found to be at least 20 to 33 percent per month, three to five times higher than market interest rates.

4 Working for the Future: Female Factory Work and Child Health in Mexico, by David Atkin (April 2009)

Atkins’ paper found that children whose mothers lived in a town where a maquiladora (export factory) opened when the women were sixteen years old were much taller than those children born to mothers who did not have a similar opportunity. The effect was so large that “it can bridge the entire gap in height between a poor Mexican child and the “norm” for a well-fed American child.” (Poor Economics, 229)

The increase in height could not be fully explained by the changes in family income resulting from employment in a maquiladora. As Bannerjee and Duflo suggest, “Perhaps the sense of control over the future that people get from knowing that there will be an income coming in every month -and not just the income itself- is what allows these women to focus on building their own careers and those of their children. Perhaps this idea that there is a future is what makes the difference between the poor and the middle class.” (Poor Economics, 229)


Banerjee and Duflo’s positive message is that poverty can indeed be alleviated, but we need to take one small measurable step at a time with constant evaluation of whether or not particular policies are successful, based on evidence, not just on belief systems.

Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty” deserves its place of honor alongside other such genuine classics as E.F. Schumaker’s “Small Is Beautiful: A Study of Economics As If People Mattered” (1973). It is a must-read for geographers, regardless of your political persuasion.

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NAFTA 20 years on: success or failure?

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Jan 092014

The North American Free Trade Association (NAFTA) came into effect on 1 January 1994. Twenty years on, opinions remain sharply divided over the extent to which NAFTA has benefited Mexico and Mexicans.

NAFTA has led to progress

The Economist magazine is among those arguing that NAFTA has transformed the Mexican economy for the better, but that much remains to be done if Mexico is to make the most of its partnership with the USA and Canada. Two recent articles from The Economist summarize the arguments for NAFTA having been a success story for Mexico:

NAFTA has hindered progress

Other analysts are equally convinced that NAFTA has hindered Mexico’s economic progress and has brought problems for many Mexicans. For example, Timothy A. Wise, the policy research director at Tufts University’s Global Development and Environment Institute, argues that NAFTA has had adverse impacts on agriculture and on Mexico’s food security.

In Wise’s view, NAFTA had a sequence of impacts. First, it led to a flood of US imports of corn, wheat, meat and other staples which drove Mexican producer prices down below the costs of production. (Some US corn exports to Mexico were “dumped” at prices 19% below even US farmers’ costs of production). While Mexico’s own agricultural exports to the USA increased due to NAFTA, the overall agricultural trade deficit between the two countries widened considerably, with Mexico needing to import almost half of its total food requirements by the mid-2000s.

The international prices for many of these imported crops have doubled or tripled over the past decade, and Mexico’s agricultural trade deficit with the USA jumped to more than $4 billion. Why does Wise choose to highlight the beer industry? He argues that even the success of Mexico’s beer industry has brought more benefits to US farmers than Mexican farmers because the two major raw materials for beer (barley and malt) are not produced in Mexico, but imported from the USA.

Similarly, in a Guardian article entitled NAFTA: 20 years of regret for Mexico, Mark Weisbrot, the co-director of the Centre for Economic and Policy Research in Washington DC, concludes that, “It’s tough to imagine Mexico doing worse without NAFTA.”


Both sides of this argument hold some merit. While some sectors of Mexico’s economy, and some people, have undoubtedly gained from NAFTA, others have lost.

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The impact of immigrants on U.S. public budgets

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Sep 052013

As the US Congress debates new immigration reform legislation there is considerable confusion concerning the fiscal impact of immigrants. One side argues that immigrants pay relatively little in taxes and absorb costly benefits in terms of public health, education, welfare, etc. Others note that immigrants often pay significant amounts in taxes and get little back in terms of benefits. Obviously, it depends on the immigrant and perhaps on their legal status.

OECD-migrationIn June 2013, the OECD published “International Migration Outlook,” a study on the budgetary impacts of immigrants to OECD countries. (OECD countries Mexico and 29 other mostly rich and mainly European countries). The study compares native-born with foreign-born residents, some of whom may have already become citizens. The study suggests that immigrants may have a slightly positive impact on fiscal budgets. The average for all OECD countries was 0.3% of GDP; the comparable figure for the USA was 0.03%.

Immigrants tend to have lower incomes, pay a bit less in taxes, but receive less in benefits. They tend to be younger and thus receive less in public health benefits. If they have children, they receive considerable education benefits. Obviously these are gross generalizations as some immigrants are highly paid executives and scientists, who pay significant taxes, while others may work as domestics or laborers, paying far less in taxes. Given that many public costs, including defense and debt service, are very hard to allocate to migrants versus native-born, the study suggests that immigration appears to be neither a drain nor a gain on fiscal budgets.

A big issue in the USA is the specific impact of Mexican immigrants on the fiscal budget, particularly the impacts of undocumented immigrants. Many legal immigrants from Mexico are family members joining their relatives. They may or may not be employed and thus may not pay income taxes. On the other hand, virtually all illegal immigrants seek employment. Furthermore, many obtain formal sector jobs by using fake Social Security cards or “Individual Tax Identification Numbers.” Their employers deduct federal and state income tax from their paychecks and forward these funds to government tax agencies.

Undocumented immigrants rarely file tax returns and thus very rarely receive the tax refunds to which they might otherwise be entitled. All immigrants pay considerable amounts in gasoline and sales taxes as well as property taxes, either directly or indirectly as part of their rent. Given that most illegal immigrants are rather young, relatively healthy and without children, they may have only a small impact on public education and health expenses. Their children are often born in the US, are US citizens, and should not be considered immigrants. It appears that undocumented immigrants might be paying more into the public coffers than they receive in benefits. A closer look at the data may provide some answers.

A 2007 study by the US Congressional Budget Office (CBO) entitled “The Impact of Unauthorized Immigrants on the Budgets of State and Local Governments” directly addressed this issue. The study notes that at the Federal level roughly 50% of illegal immigrants pay income or payroll taxes, which include Medicare taxes. But they generally are excluded from such Federal benefits as Social Security pensions, Medicare and Medicaid (other than emergency services), Food Stamps, and Assistance to Needy Families. The data suggest that in general illegal immigrants usually pay more in federal taxes than they receive in benefits. On the other hand, a number of court cases mandate that state and local governments cannot withhold from illegal immigrants certain services such as education, selected health care, or law enforcement. Many illegal immigrant children do not speak English; therefore their education may be more costly.

In assessing the fiscal impact on state and local government budget, the CBO analyzed 29 reports published since 1990. The study noted that undertaking such an analysis is very challenging and involves many big assumptions. Still the CBO analysis concluded that the relatively small amount spent by state and local governments on services for illegal immigrants is not fully offset by the even smaller amount of tax revenues collected from them including federal revenues they may receive for this purpose.

In conclusion, available research suggests that the impact of immigrants on public budgets is not very clear. With respect to all immigrants, there appears to a slight positive fiscal impact according to a recent OECD study. The older CBO analysis indicates that undocumented immigrants appear to have a positive impact of the federal budget, but a negative fiscal impact for state and local governments. Of course, the impact varies enormously among migrants depending on their incomes, tax brackets, consumption patterns and needs.

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Shopping habits in Mexico

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Aug 282013

Kantar Worldpanel México’s survey of shopping habits for 8,500 homes across the country reveals that 70% of household expenditures are spent in one of three main “purchasing channels”.

1. The first, traditional convenience or “corner” stores receive 35% of household spending, and are the channel most frequently visited, 217 times/year/household on average. Poorer households rely more on these stores than middle-class households. Most visits (71%) are on weekdays and 44% of visits are to purchase items for immediate consumption.

2. Supermarkets are the second main channel, used by 98% of households, with a frequency of 49 trips/year. Supermarkets are favored by middle class families for their weekly or biweekly shop, usually on weekends.

3. The third main channel is door-to-door and catalog sales, used by 92% of households, with a frequency of 42 times/year.

According to the study, 74% of households choose the nearest store and 78% attach importance to the location of the store.

Cities with Oxxo Distribution Centers. Credit: Tony Burton/Geo-Mexico

Cities with Oxxo Distribution Centers. Credit: Tony Burton/Geo-Mexico

It is no coincidence, then, that Oxxo, the nation’s largest convenience store chain, recently opened its 11,000th store in Mexico. Oxxo now serves residents of 350 towns and cities, and plans to add a further 1,037 outlets before the end of this year. Its extensive network is served via a chain of 15 strategically-located distribution centers in the 13 cities shown on the map above.

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Why Is Mexico in the OECD?

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Jan 172013

The Organisation for Economic Co-operation and Development (OECD) was founded in 1961 to promote economic growth. Its current 34 members include 25 European countries along with Canada, the USA, Australia, New Zealand, Japan, South Korea, Mexico, Chile and Israel. Mexico joined the group in 1994. Four new members were admitted in 2010: Chile, Slovenia, Estonia and Israel. Russia is not yet a member but is moving toward that goal. The current Secretary General of the OECD is Mexico’s  José Ángel Gurría Treviño, first appointed in 2006; his current term in this position extends to 2016.


OECD member countries are among the most highly developed and wealthiest countries on the planet. Though OECD members represent only 18% of the world’s population, they account for 55% of global Gross Domestic Product (GDP), measured on a Purchasing Power Parity (PPP) basis. Among OECD members, Mexico has the lowest per capita GDP, slightly behind Chile and Turkey. In terms of the UN Human Development Index (HDI) Mexico trails all the others except Turkey. How did Mexico become a member of this very elite set of countries?

There are three main criteria for OECD membership:

  1. Democracy and respect for human rights
  2. Open market economy
  3. GDP per capita (PPP) at least as high as the poorest OECD member

When Mexico became a member in 1994, it was a democracy albeit a one party democracy. It was very clearly an open market economy and its per capita GDP was slightly higher than Turkey’s. Consequently, it met the criteria and was admitted by other OECD members. (See Elżbieta Czarny et al., The Gravity Model and the Classification of Countriesin Argumenta Oeconomica, 2 (25) 2010.)

What are the benefits of OECD membership?

As a member, Mexico fully participates in OECD discussions concerning economic, social and environmental situations, issues, experiences, policies, and best practices. OECD collects and analyzes a very wide range of data which enables Mexico to monitor its position and progress on numerous important dimensions. OECD also has numerous world class experts and committees that can assist countries on specific issues and policies.

Certainly being a member of this elite group provides Mexico with an amount of international prestige. On the other hand, most development analyses and comparative OECD reports show Mexico near the bottom on most measures and rankings.

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The value in Mexico of unpaid work in the home

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Aug 042012

A study by the National Statistics Institute (INEGI) based on 2010 data calculated that routine work done in the home (almost 80% of the time-value involved by women) is worth about 2.9 trillion pesos to the Mexican economy each year, equivalent to more than 20% of Mexico’s GDP. By way of comparison, manufacturing accounts for 17.2% of GDP, and commerce 15% of GDP.

The INEGI calculation includes the costs in time/labor needed to meet the demands of the home, and the net salary that would be paid for someone undertaking those tasks.

INEGI divides work done in the home into six categories:

  • help and assistance to members of the household. [In market value terms, this is equivalent to 6.9% of GDP]
  • preparation and serving of meals [5% of GDP]
  • cleaning and maintaining the home [3.5% of GDP]
  • shopping and household administration [2.9% of GDP]
  • washing and looking after footwear and clothing [2% of GDP]
  • helping other households and voluntary work [1.6% of GDP]

INEGI’s findings suggest that some aspects of family life and the division of “duties” (such as that common to older images like the one below) are not changing very rapidly.

"La Familia" ("The Family"). School chart of unknown date.

“La Familia” (“The Family”). School chart of unknown date.

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Is Mexico experiencing a demographic dividend?

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Jul 232012

Mexico’s 2010 population of 112 million makes it the world’s 11th largest country in terms of population. The rate of population increase is now slowing down as fertility rates fall. The rate of increase, which was 2.63%/yr for the period 1970-1990, fell to 1.61%/yr for the period 1990-2010.

Even as the total population continues to grow over the next few decades, some very important changes are underway in Mexico’s population structure.

The graph divides Mexico’s population into three age categories: under 15 (youth), 15-59 (working age) and 60+ (elderly).

Mexico's population structure, 1970-2010

Mexico’s population structure, 1950-2010

The percentage of the total population of youthful age peaked in about 1970 at 46.2% and has since fallen to 29.3% in 2010. Over the same time period, the percentage of working age population has risen from 48.2% to 61.6%, while the percentage of elderly has gone from 5.6% to 9.1%.

Why is this important?

Perhaps the most obvious change is that government spending on schools and services for youth needs to shift towards spending on health care, pensions and services for the elderly. There are already some suburbs of the Mexico City Metropolitan Area that have experienced a dramatic shift in average age. Perhaps the most notable example is the Ciudad Satelite area, an area originally intended to be, and planned as, a genuine satellite settlement. A few decades later, the urban expansion of Mexico City had swallowed it up. An area which once had many young families now has very few children. The homeowners association of Ciudad Satelite estimates that 75% of the area’s 50,000 inhabitants is now elderly.

The major benefit of the changing population structure would appear to be that, in 2010, there are more wage-earners (and tax payers) for every person of non-working age (assumed for simplicity to be youth under 15, and the elderly aged 60+) than at any previous time. In other words, the total dependency rate is lower than ever before.

Economists argue that this “demographic dividend” should raise GDP, and could offer many significant advantages, such as enabling greater government expenditures on infrastructure or on social services. They point to several countries in East Asia as examples where economic growth spurts went hand-in-hand with a period of demographic dividend.

Despite the claims of economists, I’m not convinced that Mexico will prove to be an equally good example of the benefits of a demographic dividend. In Mexico’s case, the early phase of higher youthful population (and considerable economic growth) was accompanied by a high rate of emigration of working age Mexicans to the USA. Admittedly, emigration has now slowed, or stopped.

As Aaron Terrazas and his co-authors point out in Evolving Demographic and Human-Capital Trends in Mexico and Central America and Their Implications for Regional Migration [pdf file],

“But across Latin America, and in sharp contrast to East Asia, favorable demographic change has failed to translate into economic growth and prosperity. National income per capita has increased only modestly since the start of the demographic dividend, with Mexico outperforming its southern neighbors at comparable points in time. And emigration from the region has continued to grow despite the demographic transitions in Mexico and El Salvador, with the United States absorbing between one-fifth and one-quarter of the region’s annual population growth.”

Whether or not Mexico experiences a demographic dividend, it will not last for ever. In Mexico’s case, it looks set to last only about about 20 years. By 2050, according to current predictions, about 26.4% of the Mexico’s population will be youthful, and 27.7% elderly, while the percentage of working age will have fallen to 45.9%.

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Have Mexicans given up on the dream of moving to the USA?

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Jul 092012

A recent post noted that net migration from Mexico to the USA has dropped to essentially zero. Does this mean that Mexicans no longer have any interest in moving to the USA? The answer to this question is complicated. Obviously, many Mexicans living in Mexico would like to join their family members in the USA if it were legally possible. Others might feel that their career ambitions or the aspirations of their children might be better served by living in the USA. On the other hand, many Mexicans in the USA might feel that their lives would be better if they lived in Mexico.

A face-to-face survey in April 2012 by the Pew Research Center of 1,200 Mexicans in Mexico sheds light on this issue. According to the survey, 56% had a favorable view of the USA, compared to 52% in 2011. Only 34% had an unfavorable view of the USA, down from 41% in 2011. The views varied significantly by age and education. Sixty percent of 18 to 29-year-olds had a positive view compared to only half of those over age 50. Fully 66% of those with a post-secondary education had a favorable view compared to less than half (48%) of those with less education.

Over half (53%) think that Mexicans who move to the USA have a better life, up sharply from 44% in 2011. This suggests that there is still considerable interest in migration. Only 14% indicated they had a worse life, down from 22% a year earlier. However, 61% said they would not move to the USA if they had the means and opportunity. On the other hand, 37% said they would move to the USA and of these 19% indicated they would move even without legal documentation. Not surprisingly, younger Mexicans and those with more education were more interested in moving to the USA.

The survey data indicate that when/if US unemployment declines and there are again ample job opportunities in the USA, many Mexicans may migrate legally or illegally to fill those jobs. Of course, employment opportunities in Mexico will be a very important factor affecting decisions about migration. While the Mexican economy has recovered from the severe recession far better than the USA, still 62% of surveyed Mexicans described the economy as “bad”, down from 75% in 2010 and 68% in 2011. But Mexicans remain optimistic, 51% say the economy will improve in the next year compared to 32% who think it will remain the same, and only 16% who believe it will be worse. The Mexicans more willing to migrate, those with higher educations and incomes, are more optimistic about Mexico’s economic future. If the gap between US and Mexican economic opportunities continues to shrink in the decades ahead, we can expect Mexicans to become less interested in moving to the USA.

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Mexico’s position among the world’s largest economies: 1900 to 2008

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Jul 072012

Comparing the historical sizes of national economies is extremely challenging. Fortunately, Gapminder has attempted to do this by compiling GDP data for all countries in the world for the period since 1800. (For details, see here and here.) Gapminder’s approach relies on first obtaining for each country historical population size and Gross Domestic Product per capita (GDPpc) and then multiplying these to obtain the GDP. Gapminder relies on quantitative and qualitative data from hundreds of official and unofficial documents and a number of carefully documented assumptions.

Mexico’s total GDP has grown almost 60-fold since 1900 in inflation-adjusted constant 2005 dollars based on Purchasing Power Parity, which measures total goods and services produced by an economy independent of exchange rates. Growth started rather slowly, but accelerated very rapidly at mid-century. From 1940 to 1980, Mexico’s economy almost doubled each decade, moving up from $49 billion in 1940 to $637 billion in 1980, averaging about 6.6% per year. Of course, Mexico’s population was also growing rapidly during those four decades. Growth slowed to 2.0% per year in the 1980s but jumped up to 3.4% in the 1990s. From 2000 to 2008, growth slowed to 2.1% per year, partially as a result of the severe recession in the USA. Mexico’s economy is expected to grow significantly faster in this decade.

Growth of major world economies, 1900 to 2008 (Gapminder data)

(GDP in billions of constant 2005 US dollars based on Purchasing Power Parity)

Country19001930195019802008Growth/yr, 1900-2008
South Korea712161651,1774.9%

In 1900, Mexico’s total GDP of $23.3 billion was just ahead of Canada and over twice that of Brazil. However it was behind Indonesia and less than 5% of the USA’s world leading GDP. The Mexican economy was less than one tenth that of Germany and the UK, a seventh that of France and less than a third that of Japan and Italy. The table shows GDP levels for some of the world’s largest economies from 1900 to 2008.

The Mexican GDP expanded by 1.5% per year from 1900 to 1930 despite stagnation during the Mexican Revolution of 1910 to 1920. While this growth rate was better than UK, and tied with China, it was slower than the other countries in the table which expanded rapidly at the start of the 20thcentury. Brazil spurted ahead at 4.4% per year, edging past Mexico as Latin America’s largest economy. Canada expanded by 3.9% per year and doubled Mexico’s GDP. The USA grew by 2.8% per year becoming the first trillion dollar economy by 1923. France and Germany grew at about 1.6% per year, while Japan, Indonesia and Italy expanded by about 2.5% to 2.6%.

From 1930 to 1950, Mexico grew rapidly to $94 billion at a very impressive 4.9% per year, faster than all the other countries except Brazil at 5.3% per year. The USA (up 3.8% per year) and Canada (up 3.6%) also expanded rapidly, while the UK, Italy and Japan grew much slower, in the 1.5% to 1.7% range. The other countries struggled at rates around 0.5% or less. China’s GDP declined by a mind-boggling 4.1% per year during the 20 years from $497 billion down to $216 billion, more than a third less than what it had been in 1820! China’s economy seriously contracted over a 130 year period. The Great Depression hurt most economies; however World War II allies Japan (up 5.8% per year) and Germany (up 3.9%) grew relatively rapidly during the 1930s.

The 1940s and World War II had very dramatic impacts on the major economies. During the decade, Mexico’s GDP led the field with very impressive growth at 6.7% per year, closely followed by Brazil at 6.2%, USA at 5.2% and Canada at 5.0%. Wartime production was a major stimulus to these economies. On the negative side, several countries experienced dramatic war-related loses. China was at war throughout the decade and its economy declined by an incredible 7.0% per year during the 1940s, Germany was down by 3.5%, Japan by 2.6%, South Korea by 2.7% and Indonesia by 2.5%. Compounding these annual changes demonstrates their real significance. Mexico’s GDP almost doubled from $49 billion in 1940 to $94 billion in 1950, while China’s GDP dropped more than half from $447 billion in 1940 to $216 billion in 1950. By 1950, Mexico’s GDP was nearly half that of China and Japan, 1.7 times that of Indonesia and over six times that of South Korea. These four Asian countries would grow very rapidly during the “Asian Miracle” of the second half of the 20th century.

Mexico continued its dramatic growth expanding by 6.6% per year from 1950 to 1980. This was the “Mexican Miracle” which actually started in the 1940s. By 1980, Mexico’s GDP reached $637 billion, surpassing Canada and India; it was above one tenth of the USA’s GDP for the first time in over 100 years. All other economies also grew very rapidly during this thirty year boom period. Japan led the way with 7.9% per year, followed by Brazil at 7.5% per year. China finally broke from its 130 year slump growing at 4.9% per year; in 1956 it finally regained the GDP level it had in 1820. In 1980 Mexico’s GDP was about 70% that of China compared to only 7% in 1930 and 2% in 1820.

From 1980 to 2008, Mexico’s growth slowed a bit but still managed a very respectable increase of 2.7% per year which doubled its GDP from $637 billion to $1.334 trillion. This growth rate was better than that of Japan and all other large western economies (tied with Canada). But it significantly lagged behind four large Asian economies: China (up 8.4% per year), India (up 6.0%), South Korea (up 7.3%) and Indonesia (up 4.8%). China’s GDP increased almost ten-fold from 1980 to 2008. In 1980 India’s GDP was less than that of Mexico, but by 2008 it was over twice as large. Mexico’s GDP in 2008 of $1.3 trillion puts it in 11thplace, behind Italy and just ahead of Spain, Canada and South Korea.

Reviewing the entire 108-year period from 1900 to 2008 reveals the dramatically changes that can occur. Some Asian countries, especially China, really struggled for decades early in the century and then expanded extremely rapidly in recent decades. Compared to the other countries, Mexico did extremely well increasing at an average of 3.8% per year from $23 billion in 1900 to $1.3 trillion in 2008, a 57-fold increase. Brazil and Korea did considerably better, averaging 4.9% per year for 180-fold increases. Even the slowest growth country, the UK, grew by a respectable 2.0% per year for over an eight-fold increase since 1900. All major economies did well making the 20thcentury clearly the best century by far in terms of economic growth. The total GDP of 12 countries (Brazil, Canada, China, France, Germany, Indonesia, Italy, Japan, Mexico, South Korea, UK and USA)in the table with available data grew by 2.0% per year from 1900 to 1950 compared to a very impressive 3.8% per year from 1950 to 2008. The second half of the century was much better than the first; this indicates that economic growth is accelerating and accelerating fast. Will this continue in the decades ahead?


Mexico’s GDP and position among the world’s largest economies, 1800 to 1900

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Jun 302012

Comparing the historical sizes of national economies is extremely challenging. This post relies on data from Gapminder which has attempted to do this for all the countries in the world for the period since 1800. Gapminder’s approach relies on first obtaining for each country historical population size and Gross Domestic Product per capita (GDPpc; for more details, see Standard of living in Mexico since 1800: some international comparisons) and then multiplying these to obtain the GDP. To obtain historical measures of population and GDPpc, Gapminder relies on quantitative and qualitative data from hundreds of official and unofficial documents and a number of carefully documented assumptions. In some cases they admit that some of their numbers for years before 1900 are essentially well-educated “guesstimates”. [Full details are given in the pdf file “Documentation for GDP per capita by purchasing power parities“.]

Though the Gapminder data have limitations, they are about the best source for comparing the GDP growth of Mexico since 1800 with that of other large economies. The Gapminder GDPpc data are adjusted for inflation by using constant 2005 US dollars. They are also based on Purchasing Power Parity (PPP) which measures total goods and services produced by an economy independent of exchange rates.

During the 19th century Mexico’s total GDP grew at a relatively unimpressive 1.3% per year, which was only about 0.5% above population growth. In 1800, Mexico’s estimated GDP was just over $6 billion, ranking it second in the Americas. Though this was almost nine times the GDP of Canada, and 3.6 times that of Brazil, it was less than that of Nigeria and half that of the USA. China had by far the largest GDP in 1800 at about $290 billion, more than three times the GDP of second place India, over seven times that of Japan and the large European countries (France, Germany and the UK) and over 20 times that of the USA. The table below shows the estimated GDP levels from 1800 to 1900 for some of the world’s current largest economies.

Estimated total GDP of large economies, 1800 to 1900

(GDP in billions of constant 2005 US dollars based on Purchasing Power Parity)

Country1800182018701900Growth/yr, 1800-1900

From 1800 to 1820, just before gaining independence, the Mexican economy grew to $7.3 billion at a sluggish rate of about 0.9% per year. In contrast, Canada and the USA expanded at around 2.3% per year while Brazil’s GDP went up about 1.9% per year. Germany, France, UK and Italy grew at roughly 1.0% to 1.5% per year. The major Asian countries–China, India, Japan and Indonesia–only managed 0.4% to 0.7% per year. The Russian economy essentially stagnated during the 20 year period. China maintained the top position with over three times the GDP of India and over six times those of the large European economies.

By 1870, Mexico’s GDP had inched up over $9 billion growing rather slowly at just over 0.4% per year since 1820; this was slower than the population growth rate. While Mexico’s growth rate was better than the three biggest Asian economies, it severely lagged behind its northern neighbors which grew very rapidly based on industrialization and immigration. Canada’s economy expanded by an impressive 4.4% per year and edged past Mexico. The USA did almost as well at 4.2% per year to move into second place behind China, which declined by a surprising 0.3% per year over the fifty year period. (In China both GDPpc and population declined from 1820 to 1870.)

Brazil grew by a solid 2.1% per year and closed the gap with Mexico. The three largest European economies were also industrializing and grew by roughly 1.7% to 2.0% per year, but they were still overtaken by the USA. While Indonesia’s GDP expanded by about 1.1% per year, growth rates for Japan and India were less than 0.4% per year.

From 1870 to 1900, under the Porifiro Diaz regime, Mexico’s economy grew rapidly at about 3.2% per year up to $23.3 billion. This put Mexico just ahead of Canada which grew slightly more slowly at roughly 3.1% per year. Mexico’s estimated GDP in 1900 was just behind that of Indonesia but over twice that of Brazil which slowed to 1.3% per year. The USA sped ahead at 3.9%. In the early 1880s it became the world’s largest economy by overtaking China which grew slowly at less than 0.5% per year. In 1900 China’s estimated GDP was actually less than it had been 80 years earlier in 1820. By 1900 the USA’s estimated GDP was over $500 billion, about 22 times that of Mexico. Germany grew at an impressive 2.7% per year becoming Europe’s largest economy by moving past the UK which grew at 2.2%, about the same rate as Japan. Growth in France and Italy was significantly slower.

During the full 19th century, Mexico almost quadrupled its GDP but its overall economic performance was fair at best. Its growth rate of just over 1.3% per year was better than the Asian countries which performed poorly during the century. The USA registered a very impressive 3.8% growth per year resulting in a fortyfold GDP increase. Canada was a close second with 3.6% per year and a 34-fold increase. Germany and the UK had seven-fold increases with growth rates near 2.0%, followed by Brazil at 1.8% growth per year. France followed with growth averaging just under1.5% per year. Though these Gapminder GDP levels have some limitations, they do give a pretty good indication of relative historical economic sizes and growth rates.

Mexico’s economic performance was much better in the 20thcentury as was that of all major world countries. A future post will focus on economic growth since 1900.