In this new growth and development video we look at the challenges and opportunities facing the emerging market economy of Mexico.
We have chosen Mexico because it has reached upper middle-income status with a per capita income in excess of $17,000 a year but it is a country at risk of falling into the Middle-Income Trap which is where an economy is unable to make the next step to high income advanced country status.
Mexico is a sizeable economy and one of the largest exporting-nations in the world. But can they maintain their comparative advantage in manufacturing? How exposed are they to external shocks such as persistent trade tensions with the United States and the competitive threat from low unit labour cost countries such as Indonesia?
Unemployment in Mexico is very low. At the end of 2018, the average unemployment rate in Mexico was 3.3%, the fourth lowest among the countries of the Organization for Economic Cooperation and Development (OECD), only behind the Czech Republic, Japan and Iceland.
Consumer price inflation is now more firmly under control – heading towards the target of 3 per cent although the Mexican central bank has recently raised interest rates to 8 per cent to control inflationary pressures.
But the economic growth rate of just over 2.5% pa over the last decade is not fast enough for a country that is hoping to reach high income status. Per capita income growth is much lower once we account of population growth.
Some economists believe that Mexico may fall into the Middle Income Trap.
The middle-income trap exists for some countries that make significant progress in reducing extreme poverty and experience structural change and growth but then find it difficult to make the climb from being a middle-income country to achieve high-income fully developed status. GDP growth rates often slow down and a country can struggle to maintain international competitiveness.
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