Mexico is a country with a rich history and wonderful prospects for economic development and growth. A place where several advanced civilizations were born, Mexico is also the land of immense economic growth opportunities. The country’s Human Development Index (HDI) is 0.775, and it constantly improves.
Industrial growth, urbanization, and economic development greatly contribute to the country’s prosperous landscape. The purpose of this paper is to review the main aspects of Mexico’s development through the prism of the concepts and theories presented by Todaro and Smith (2012).
Overall Standard of Living
General Discussion
According to Todaro and Smith (2012), the standard of living is one of the three goals of development currently included in the Human Development Index (HDI). The latter also includes longevity, or life expectancy at birth, and knowledge, or adult literacy rates (Todaro & Smith, 2012).
Standard of living is measured as “real per capita gross domestic product adjusted for the differing purchasing power parity of each country’s currency to reflect the cost of living” (Todaro & Smith, 2012, p.48). Earlier, HDI was calculated by converting purchasing power parity into adjusted income (Todaro & Smith, 2012).
Today, adjusted income is calculated by using the log of the current income, while the income index is calculated by subtracting the log of 100 from the current income log (Todaro & Smith, 2012). Here, HDI = 1/3*(income index) + 1/3*(life expectancy index) + 1/3*(education index) (Todaro & Smith, 2012).
This, however, is the old way to calculate HDI. In the New Human Development Index (NHDI), Gross National Income per capita has been replaced by per capita GDP (Todaro & Smith, 2012).
The education index is based on the new criteria, and neither enrollment nor literacy is considered as essential in the analysis of a country’s human development progress (Todaro & Smith, 2012). 2012). The geometric mean is used to calculate the new index (Todaro & Smith, 2012).
Mexico
According to the World Bank (2013), Mexico’s Gross National Income (GNI) calculated with the Atlas method is currently $9.600. This method is used to calculate GNI per capita by dividing the country’s total GNI by the midyear population (World Bank, 2013). Mexico’s GNI calculated through purchasing power parity (PPP) is 16,440 in international dollars (World Bank, 2012).
The country’s Human Development Index is 0.775, which is lower than that of the U.S. (0.902) but is still close to 1 (CIA, 2013). It should be noted that HDI measures countries on a scale of 0 to 1. The closer the country’s HDI is to 1, the better the country is doing in terms of human capital development.
Inequality
General Discussion
According to Todaro and Smith (2012), inequality remains one of the biggest problems facing the developing world. Modern economists distinguish between the two principal measures of income distribution: (1) personal income distribution and (2) functional income distribution (Todaro & Smith, 2012). The most common is the measure of the personal income distribution, which shows how much income individual households receive (Todaro & Smith, 2012).
Still, Gini coefficient remains the most popular instrument of calculating and measuring the extent of income inequality at the national level: like HDI, Gini coefficient ranks countries by the degree of income inequality (Todaro & Smith, 2012). Extreme income inequality is associated with macroeconomic inefficiency while undermining the principles of solidarity and stability in social life (Todaro & Smith, 2012).
Mexico
Mexico is characterized by relatively high levels of poverty and income inequality. Gini index for Mexico is 48.3, compared with 45 in the U.S. (CIA, 2013). Ten percent of the population at the bottom of the social hierarchy is responsible for 1.5 percent of the national income, while the top 10 percent of the richest population accounts for 41.4 percent of the nation’s income (CIA, 2013).
Mexico has made slow but steady progress toward reducing the scope of income inequality. Also, the problem of gender inequality in Mexico is not as serious as it is in other countries.
Mexican Gender Inequality Index is currently 0.382, being lower than the international average of 0.468 (International Human Development Indicators, 2013). The GII of 0.382 indicates that Mexico loses 38.2 percent of its human development potential due to gender inequality.
Population Growth Issues
General Discussion
Todaro and Smith (2012) write that the global population has increased dramatically during the industrial era. However, population growth dynamics vary considerably across developing countries (Todaro & Smith, 2012). Developing countries with middle-income display greater variability in population growth trends than rich countries (Todaro & Smith, 2012).
However, the developing world is more vulnerable to the deterrent impacts of social and economic dependency (Todaro & Smith, 2012). However, it is wrong to believe that population growth by itself constitutes a problem.
On the contrary, it is not population growth but the state of dependency on richer countries that impedes the economic growth in the developing world (Todaro & Smith, 2012). Moreover, for many developing countries, population growth is even desirable, since it serves as a valuable source of the labor force to support countries’ economic advancement (Todaro & Smith, 2012).
Mexico
According to CIA (2013), Mexico’s estimated population growth in 2013 is 1.07%. Mexico ranks 109th in the world by the rates of population growth (CIA, 2013). Cave (2013) suggests that the country is becoming a haven for thousands of migrants. Between 2000 and 2010, Mexico’s foreign-born population doubled (Cave, 2013).
Against the background of higher transportation costs and rising wages in China, the Mexican manufacturing industry has become extremely competitive, and thousands of people come to the country looking for residency and employment (Cave, 2013). The case of Mexico suggests that the socioeconomic conditions of life play a vital role in regulating the patterns of population growth and development.
Human Capital Issues (Education and Health)
General Discussion
Todaro and Smith (2012) write that health and education are critical for economic growth in any country. The Human Development Index uncovers huge disparities in the amount of quality of the human capital available in different countries.
The developing world lags behind the developed countries in terms of health, nutrition, and education (Todaro & Smith, 2012). At the same time, health and education create unique synergies that shape the basis for promoting faster economic growth in the developing world.
Mexico
Mexico can is one of the most successful countries of the developing world in terms of health. Health care expenditures in Mexico do not exceed 3.1 percent of GDP, and the country’s health index is 0.901, being close to that of the countries with high human development (International Human Development Indicators, 2013).
The situation with public education is more complicated, as the mean years of schooling in Mexico do not exceed 8.5 years for adults (International Human Development Indicators, 2013). The rates of adult literacy are quite high – 93.1 percent (International Human Development Indicators, 2013).
Combined gross enrollment in education for both sexes is 80 percent (International Human Development Indicators, 2013). However, as Todaro and Smith (2012), state, the fact of enrollment does not guarantee successful graduation. Therefore, it cannot be considered a reliable measure of educational and social attainment.
Physical Infrastructure
General Discussion
Physical infrastructure is an essential measure of socioeconomic wellbeing across countries. Todaro and Smith (2012) suggest that, in the absence of sufficient capital and physical infrastructure, the rapid population growth will hardly benefit the developing world. As such, physical infrastructure should be treated as an important factor of sustained growth and positive development in any country.
Mexico
Physical infrastructure remains one of the most acute problems for Mexico. It is also the factor that slows down the country’s economic and social development. O’Neill (2011) claims that the absence of effective physical infrastructure holds Mexico back, as the percentage of GDP invested in infrastructure remains surprisingly low.
“The limits on roads, railroads, ports, water and electricity systems, telecommunications and the like hamper efficiency and productivity throughout the economy” (O’Neill, 2011, para. 2). Consequently, the development of effective infrastructure should become one of the top priorities for Mexico.
Urbanization/ Rural Development/ Migration/ Informal Economy Issues
General Discussion
One of the distinguishing features of the recent economic development is the shift away from agricultural production towards a greater share of manufacturing and services (Todaro & Smith, 2012). With rural territories being poor and suffering from the lack of information and markets, millions of people move to urban territories (Todaro & Smith, 2012).
More than 50 percent of people around the globe live in cities (Todaro & Smith, 2012). The growing rates of urbanization generally contribute to the growth of per capita income, with the richest countries being the most urbanized (Todaro & Smith, 2012).
Mexico
Urbanization is one of the distinguishing features of Mexico. Seventy-eight percent of the country’s population lives in cities (CIA, 2013). The rates of urbanization equal to 1.2 percent annually (CIA, 2013). Mexico City remains the second biggest urban conglomeration in the Western Hemisphere after San Paulo (CIA, 2013).
These urbanization rates promise to improve the economic and social wellbeing in Mexico, by offering cost advantages to consumers and producers, while making it easier for the country to meet its human development goals (Todaro & Smith, 2012).
Environmental Problems and Global Warming Impacts
General Discussion
Environmental issues have far-reaching implications for the success of development efforts (Todaro & Smith, 2012). On the one hand, market failures normally lead to environmental degradation (Todaro & Smith, 2012). On the other hand, as countries develop, and the demand for environmental resources grows, the risks of environmental degradation become even higher (Todaro & Smith, 2012).
Environmental problems increase the costs of health care and reduce productivity, thus distracting essential resources from the economy (Todaro & Smith, 2012). Therefore, every developing country must pay particular attention to its environmental and climate change issues.
Mexico
In 2011, the amount of carbon dioxide emissions in Mexico was 462.3 million metric tons (CIA, 2013). CO2 emissions per capita currently constitute 3.8 metric tons (World Bank, 2013). Mexico remains one of the largest emitters of greenhouse gases in the world (Mexico seeks to adapt to climate change and mitigate its effects, 2013). As a result, the impacts of climate change on Mexico are much more acute than on other countries of Latin America.
Its summers are longer and hotter, while more intense rains combine with more frequent floods and intensive droughts (Mexico seeks to adapt to climate change and mitigate its effects, 2013). In case the country fails to address its climate change controversies, its economy will decline by almost 4 percent, followed by a 6.2 percent loss in GDP (Mexico seeks to adapt to climate change and mitigate its effects, 2013).
How the Financial Crisis Is Affecting the Country
The financial crisis that started in 2008 had serious adverse impacts on the world’s largest economies. Mexico is extremely susceptible to the negative impacts of the economic crises, mainly because of its geographical proximity to the U.S.
According to Villarreal (2010), in 2009, GDP in Mexico lost 6.6 percent, due to its heavy dependence on U.S. markets. Effective economic reforms have quickly restored the Mexican economy to its previous levels. Nevertheless, future growth prospects will largely depend upon the U.S. economy’s development and growth (Villarreal et al., 2010).
Economic Theory of Development
General Discussion
Structural change and patterns of development represent an effective explanation of the elements and patterns of growth in many developing economies, including Mexico. According to this theory, increased investments and savings are necessary but not sufficient for sustained economic growth (Todaro & Smith, 2012).
The accumulation of physical and human capital should be accompanied by other social and economic changes to facilitate the transition from the traditional to the modern economic system (Todaro & Smith, 2012). These factors include but are not limited to international trade, the structure of consumer demand, urbanization, and income inequality (Todaro & Smith, 2012).
Mexico
The theory helps to explain the complexity of economic growth in Mexico, which is not limited to investment and savings increases but also incorporates changes in urbanization patterns, migration patterns, income distribution, and physical infrastructure development. Here, institutional and resource constraints play one of the vital roles in economic growth (Todaro & Smith, 2012).
Mexico has been relatively successful in implementing relevant economic policies to speed up its transition to modern economic functioning. Mexico’s unique geographical position makes access to international markets, including the U.S., easier, while increasing the country’s vulnerability to the economic crises that originate from the U.S.
Corruption
General Discussion
Todaro and Smith (2012) treat corruption as one of the micro risks for government failures. These micro risks are related to the institutional weaknesses that impede sustained economic growth in the country (Todaro & Smith, 2012).
As such, even in light of the high economic activity, elites may be corrupt enough to capture most returns, thus making investments either difficult or undesirable and ineffective (Todaro & Smith, 2012).
Mexico
Mexico’s corruption index is 34 against only 7.1 in the United States (Transparency International, 2013). As such, the chances are high that corruption will slow down the growth of the national economy in the country. Corruption is one of the problems that become more serious with time (O’Neil, 2013). 2013 has seen numerous cases of corruption unveiled in Mexican government circles, which call for the need for deep structural reforms.
Crime and Development
General Discussion
The issue of crime is intricately related to the problem of economic growth. The problem is particularly acute in urban areas, where authorities find it difficult to cope with the growing concentrations of people (Todaro & Smith, 2012). As a result, the costs of congestion can readily overweight its benefits, turning urbanization into a killer rather than a facilitator of economic development in the country.
Mexico
One of the biggest problems in Mexico is organized crime-related violence. According to Olson (2012), 47,000 people were killed in Mexico as a result of organized crime in the last five years. The human and economic costs of organized crime are unprecedented, ranging from reduced investment incentives to the lack of effective labor force. Organized crime distracts considerable resources that could be used to speed up Mexico’s economic growth.
Conclusion
Mexico is the country of developmental controversies. On the one hand, its economic policies have been quite effective in driving social and economic growth. Urbanization, population growth, migration, and health care system improvements create a perfect basis for achieving the most challenging human development goals. Nevertheless, many social and economic issues continue to persist.
The lack of effective physical infrastructure, coupled with the country’s geographic proximity to the United States, makes Mexico particularly vulnerable to the risks of economic crises. Corruption and organized crime, as well as environmental problems, distract essential economic resources and slow down the country’s economic progress.
Nevertheless, the theory of the structural pattern helps to explain how Mexico is coping with emerging growth challenges. It is possible to assume that the country will find sufficient resources to speed up its economic and social recovery after the financial crisis of 2008.
References
Cave, D. (2013). For migrants, new land of opportunity is Mexico. The New York Times. Web.
CIA. (2013). Mexico. The World Factbook. Web.
International Human Development Indicators. (2013). Web.
Mexico seeks to adapt to climate change and mitigate its effects. (2013). The World Bank. Web.
Olson, E.L. (2012). Considering new strategies for confronting organized crime in Mexico. Wilson Center. Web.
O’Neill, S.K. (2011). Mexico: Development and democracy at crossroads. Council on Foreign Affairs. Web.
O’Neill, S.K. (2013), Corruption in Mexico. Huffington Post. Web.
Todaro, M.P. & Smith, S.C. (2012). Economic development. 11th edition. Boston, MA: Pearson Education.
Transparency International. (2013). Corruption by country / territory. Transparency International. Web.
Villarreal, M.A. (2010). The Mexican economy after the global crisis. Congressional Research Service. Web.
World Bank. (2013). Mexico. The World Bank. Web.