Economy of Mexico


has a developing mixed economy. It is the 13th largest in the world in nominal GDP terms and by purchasing power parity as of 2024. Since the 1994 crisis, administrations have improved the country's macroeconomic fundamentals. Mexico was not significantly influenced by the 2002 South American crisis and maintained positive, although low, rates of growth after a brief period of stagnation in 2001. However, Mexico was one of the Latin American nations most affected by the 2008 recession, with its gross domestic product contracting by more than 6% that year. Mexico has the lowest social expenditure among OECD countries, roughly 7.5% of GDP.
The Mexican economy has maintained macroeconomic stability, reducing inflation and interest rates to record lows. Despite this, significant gaps persist between the urban and the rural population, the northern and southern states, and the rich and the poor. Some of the unresolved issues include the upgrade of infrastructure, the modernization of the tax system and labor laws, and the reduction of income inequality. Tax revenues, 19.6 per cent of GDP in 2013, were the lowest among the 34 OECD countries. The main problems Mexico faces are poverty rates and regional inequalities remaining high. The lack of formal employment, low access to financial services, and corruption have limited productivity growth. The medium-term growth prospects were also affected by a lower proportion of women in the workforce and low investment since 2015.
The economy contains rapidly developing modern industrial and service sectors, with increasing private ownership. Recent administrations have expanded competition in ports, railroads, telecommunications, electricity generation, natural gas distribution, and airports, to upgrade infrastructure. As an export-oriented economy, more than 90% of Mexican trade is under free trade agreements with more than 40 countries, including the European Union, Japan, Israel, and much of Central and South America. The most influential FTA is the United States–Mexico–Canada Agreement, which came into effect in 2020 and was signed in 2018 by the governments of the United States, Canada, and Mexico. In 2006, trade with Mexico's two northern partners accounted for almost 90% of its exports and 55% of its imports. Recently, Congress approved important tax, pension, and judicial reforms. In 2023, Mexico had 13 companies in the Forbes Global 2000 list of the world's largest companies.
Mexico's labor force consisted of 52.8 million people as of 2015. The OECD and WTO both rank Mexican workers as the hardest-working in the world in terms of the number of hours worked yearly. Pay per hour worked remains low.
Mexico is a highly unequal country: 0.2% of the population owns 60% of the country's wealth, while 38.5 million people live in poverty.

History

The Porfiriato brought substantial economic growth during the last quarter of the nineteenth century. This growth was accompanied by foreign investment, the development of railroad networks, and the exploitation of the country's natural resources. Annual economic growth between 1876 and 1910 averaged 3.3%. Large-scale ownership made considerable progress while foreign land companies accumulated millions of hectares. At the end of Porfirio Díaz's dictatorship, 97% of arable land belonged to 1% of the population and 95% of peasants were landless, becoming farmworkers in huge haciendas or forming an impoverished urban proletariat whose revolts were crushed one by one.
Political repression and fraud, as well as huge income inequalities exacerbated by the land distribution system based on latifundios, in which large haciendas were owned by a few but worked by millions of impoverished peasants living in precarious conditions, led to the Mexican Revolution, an armed conflict that drastically transformed Mexico's political, social, cultural, and economic structure during the twentieth century. The war left a harsh toll on the economy and population, which decreased over the 11-year period between 1910 and 1921. The reconstruction of the country was to take place in the following decades.
The period from 1940 to 1970 has been dubbed by economic historians as the Mexican Miracle, a period of economic growth that followed the end of the Mexican Revolution and the resumption of capital accumulation during peacetime. During this period, Mexico adopted an import substitution industrialization model, which protected and promoted the development of national industries. Mexico experienced an economic boom through which industries rapidly expanded their production. Important changes in the economic structure included free land distribution to peasants under the concept of ejido, the nationalization of the oil and railroad companies, the introduction of social rights into the 1917 Constitution, the birth of large and influential labor unions, and the upgrading of infrastructure. While the population doubled from 1940 to 1970, GDP increased sixfold during the same period.
Growth, while under the ISI model, had reached its peak in the late 1960s. During the 1970s, the presidential administrations of Luis Echeverría and José López Portillo tried to include social development in their policies, an effort that entailed increased public spending. With the discovery of vast oil fields during a period of oil price increases and low international interest rates, the government borrowed from international capital markets to invest in the state-owned oil company Pemex, which in turn seemed to provide a long-run income source to promote social welfare. This produced a remarkable growth in public expenditure, and president López Portillo announced that the time had come to "manage prosperity" as Mexico multiplied its oil production to become the world's fourth-largest exporter.
1900–19293.4%
1929–19454.2%
1945–19726.5%
1972–19815.5%
1981–19951.5%
1983 Debt Crisis-4.2%
1995 Peso Crisis-6.2%
1995–20005.1%
2001 US Recession-0.2%
2009 Great Recession-6.5%

From 1981 to 1982, the international panorama changed abruptly: oil prices plunged and interest rates rose. In 1982, López Portillo, just before ending his administration, suspended payments of foreign debt, devalued the peso, and nationalised the banking system, along with many other industries that were severely affected by the crisis, among them the steel industry. While import substitution had contributed to Mexican industrialization, by the 1980, the protracted protection of Mexican companies had led to an uncompetitive industrial sector with low productivity gains.
President Miguel de la Madrid was the first of a series of presidents who implemented neoliberal policies. After the crisis of 1982, lenders were unwilling to return to Mexico, and in order to keep the current account in balance, the government resorted to currency devaluations, which sparked unprecedented inflation, reaching an annual record of 139.7% in 1987.
One of the first steps toward trade liberalization was Mexico's signature of the General Agreement on Tariffs and Trade in 1986 under President de la Madrid. During the administration of Carlos Salinas de Gortari, many state-owned companies were privatized. The telephone company Telmex, a government monopoly, became a private monopoly, sold to Carlos Slim. Also not opened to private investors were the government oil company Pemex or the energy sector. Furthermore, the banking system that had been nationalized in the waning hours of the López Portillo administration in 1982 was privatized, but with the exclusion of foreign banks. Salinas pushed for Mexico's inclusion in the North American Free Trade Agreement, expanding it from a U.S.-Canada agreement. The expanded NAFTA was signed in 1992, after the signature of two additional supplements on environments and labor standards. It came into effect on January 1, 1994.
Salinas also introduced strict price controls and negotiated smaller minimum wage increments with the labor union movement under the aging Fidel Velázquez to curb inflation. While his strategy successfully reduced inflation, growth averaged only 2.8 percent a year. By fixing the exchange rate, the peso became rapidly overvalued while consumer spending increased, causing the current account deficit to reach 7% of GDP in 1994. The deficit was financed through tesobonos, a public debt instrument that reassured payment in dollars.
The January 1994 Chiapas uprising, and the assassinations of the ruling party's presidential candidate in March 1994, Luis Donaldo Colosio and the Secretary-General of the party and brother of the Assistant-Attorney General José Francisco Ruiz Massieu in 1994, reduced investor confidence. Public debt holders rapidly sold their tesobonos, depleting the Central Bank's reserves, while portfolio investments, which had made up 90% of total investment flows, left the country as fast as they had come in.
This unsustainable situation eventually forced the entrant Zedillo administration to adopt a floating exchange rate. The peso sharply devalued, and the country entered into an economic crisis in December 1994. The boom in exports, as well as an international rescue package crafted by U.S. president Bill Clinton, helped cushion the crisis. The economy was growing again in less than 18 months, and annual rate growth averaged 5.1 percent between 1995 and 2000. More critical interpretations argue that the crisis and subsequent public bailout "preserved, renewed, and intensified the structurally unequal social relations of power and class characteristic of finance-led neoliberal capitalism" in forms institutionally specific to Mexican society with GDP growth spurred by one-time privatizations. Per capita economic growth in the 2000s was low.
President Ernesto Zedillo, and President Vicente Fox, of the National Action Party, the first opposition party candidate to win a presidential election since the founding of the precursor of the Institutional Revolutionary Party in 1929, continued with trade liberalization. During Fox's administrations, several FTAs were signed with Latin American and European countries, Japan and Israel, and both strove to maintain macroeconomic stability. Thus, Mexico became one of the most open countries in the world to trade, and the economic base shifted accordingly. Total trade with the United States and Canada tripled, and total exports and imports almost quadrupled between 1991 and 2003. The nature of foreign investment also changed with a greater share of foreign direct investment over portfolio investment. The wealth of Mexico's leading billionaires stems from the privatizations of the 1990s, when the country sold off its state-owned companies at low prices: telecoms to Carlos Slim, trains to German Larrea, and television to Ricardo Salinas.