Incomes fared relatively poorly in the parts of Mexico that experienced little of the effects of globalization when compared to the so-called high exposure states of northern Mexico whose export-oriented industries have been magnets for foreign investors.
With all the talk these days about globalization and its discontents, the tendency is to focus on the alleged damage suffered by people with the greatest exposure to its most common manifestations, such as lower trade barriers and relaxed rules for foreign investment. But what about people who have been largely bypassed by globalization?
In Mexico, it appears that people living in areas with the least exposure to globalization -- regions that are not attracting foreign investment and are lacking in industries that serve international markets -- are lagging behind those residing in regions that have felt its full force. In Globalization, Labor Income, and Poverty in Mexico (NBER Working Paper No. 11027) NBER Research Associate Gordon Hanson asserts that in the 1990s, incomes fared relatively poorly in parts of Mexico that experienced little of the effects of globalization when compared to the so-called "high exposure" states of northern Mexico whose export-oriented industries have been magnets for foreign investors.
Hanson finds that average labor earnings decreased by 10 percent for "low exposure" states, which are located mainly in the south, relative to high exposure states. In addition, during the 1990s, the low exposure areas saw a comparative increase in workers who could not earn enough to keep their families out of poverty. "This is further evidence that during Mexico's globalization decade individuals born in states with high-exposure to globalization have done relatively well in terms of their labor earnings," he states.
Hanson acknowledges that incomes traditionally have been higher in the northern states than in the south. However, prior to the mid-1980s, when Mexico began dropping barriers to trade and investment, income differences between the two regions were actually narrowing. "The process of income convergence in Mexico came to a halt in 1985, coinciding with the onset of trade liberalization," he writes. "Since 1985, regional incomes have diverged in the country. The pattern of income growth I uncover does not appear to have been evident in the early 1980s or before."
The benefits of liberalization also helped northern states weather economic crisis. While incomes in both regions suffered during the peso collapse of the mid-1990s, Hanson finds that "the deterioration was much less severe" in the northern tier, as it occurred during the banking crisis and a subsequent nationwide downturn in economic activity.
Mexico has become a popular tableau for the study of the effects of globalization. According to Hanson, that's because the country has been so aggressive at opening up its economy to the rest of the world. Mexico started in 1985 by unilaterally cutting tariffs and eliminating other restrictions on trade. It then acted in 1989 to end many restrictions on foreign investment, and culminated the liberalization process in 1994 with the signing of the North American Free Trade Agreement (NAFTA). Hanson observes that, "partly as a result of these policy changes, the share of international trade in Mexico's GDP has nearly tripled, rising from 11 percent in 1980 to 32 percent in 2002."
Hanson notes that there could be several interpretations of his findings. One is the simple fact that when barriers to trade and investment fall, incomes will rise in areas that are most adept at participating in the global economy.
But Hanson says that others may view the income growth in the north and its relative stagnation in the south as unrelated to globalization. For example, some observers might associate the income gains in the northern states with the privatization and deregulation of Mexican industry and the reform of Mexico's land-tenure system. Hanson says that these changes actually should be of more benefit to the less unionized and more agrarian southern states and ultimately do not offer an alternative explanation for his findings.
Still, Hanson reports that while there is much evidence that globalization, or, in the south, the lack thereof, has a strong association with income levels, he observes that one has to be cautious about forcefully stating cause and effect. "In the end, we can only say that I find suggestive evidence that globalization has increased relative incomes in Mexican states that are more exposed to global markets," he writes.
Also, if this is in fact the case, Hanson points out that it's still not clear how governments should respond to such a connection. "The policy implications are unclear," Hanson concludes, "as I leave unanswered the question of how one goes about increasing regional exposure.
-- Matthew Davis
FAQs
Mexico exemplifies the dynamics of globalization and its harmful effects; more than two decades of economic restructuring have deepened the poverty of most Mexicans, more than doubled Mexico's national debt, and compelled the Mexican people to fight back against increasing exploitation and misery.
What is the relationship between globalization and poverty? ›
If globalization raises the prices of goods produced by the poor—such as agricultural goods or textiles and apparel—then poverty is also likely to decline. In addition, international trade could affect poverty through its impact on the incomes and employment opportunities of poor wage earners.
What is the main cause of poverty in Mexico? ›
Causes of poverty. The reasons for poverty in Mexico are complex and widely extensive. There is an agreement that a combination of uneven distribution of wealth and resources sponsored by economic and political agendas to favor the rich and powerful is a major contributor to the millions left behind.
In what ways has globalization affected Mexico's economy? ›
Globalization in Mexico has had indisputably positive effects on the national economy. In the 1980's and 1990's, Mexico loosened its trade restrictions, greatly reduced tariffs, and signed the North American Free Trade Agreement (NAFTA) with the United States and Canada.
Why is Mexico's poverty rate so high? ›
In fact, Transparency International outlines that “corruption is the most regressive tax in the country and a direct obstacle to the access to the most basic services for development,” Huff Post reports. This plays a key role in the rising levels of poverty in Mexico.
Is globalization bad for poverty? ›
In general, globalization has been shown to increase the standard of living in developing countries, but some analysts warn that globalization can have a negative effect on local or emerging economies and individual workers.
How does globalization affect poverty and income inequality? ›
Globalization can lower income inequality in emerging economies by boosting economic growth, technological transfer, and market access. It can increase wealth and opportunity distribution by encouraging skill development, entrepreneurship, and foreign direct investment.
Could globalization increase the poverty gap? ›
Far from widening the gap between rich and poor, globalization has helped to bring about unprecedented improvements in the living conditions of many of the world's poorest people, ICC economic analysts report.
What type of poverty is in Mexico? ›
In Mexico, poverty income is defined at about $111 per month for rural residents and $170 for those in urban areas, according to official figures. Extreme poverty covers those earning less than the amount needed to buy basic food requirements, or about $63 monthly in rural areas and $88 for urban residents.
How does poverty affect people in Mexico? ›
In 2022, 15 of the 32 federal entities had levels of extreme poverty higher than those registered in 2018 (before the pandemic). From 2018 to 2022, there were setbacks in access to health services (it went from 16.2% to 39.1% of people with deprivation) and education (the educational gap increased from 19.0% to 19.4%).
It was reported in 2022 that 26.3 percent of the indigenous population in Mexico lived in severe poverty, while only 5 percent of the non-indigenous population were considered in the same situation. Almost two-thirds, 65.2 percent, of the indigenous population that year were considered to be living in poverty.
How has Mexico tried to reduce poverty? ›
Confronted with rising poverty after the economic crisis of 1995, the Mexican government progressively changed its poverty reduction strategy, ending universal tortilla subsidies and instead funding new investment in human capital through PROGRESA.
What is Mexico best known for? ›
Mexico is known for its rich culture, ancient ruins, dazzling beaches, and incredible cuisine. Tour Mayan temple ruins by day and indulge in fantastic food while listening to the rhythms of live music by night. Lounge on tropical beaches and explore the vibrant corals and marine life of the underwater world.
Why is Mexico good for globalization? ›
In summary, manufacturing in Mexico offers several advantages to businesses and investors, such as a large and growing market, a diversified and growing economy, a well-educated workforce, established logistics infrastructure, proximity to the North American market, and programs like IMMEX that make it easier for ...
Is Mexico affected by global warming? ›
Mexico has been identified as particularly vulnerable to the impacts of global climate change (First and Second Communication, NC1/NC2 to the UNFCCC), many of which are irreversible.
How has globalization affected the country? ›
Globalization provides opportunities for reducing macroeconomic volatility on output and consumption via diversification of risk. The globalization effect indicates that financial integration helps in a nation's production base and leads to an increase in the specialization of production.
What are the effects of globalization in a country? ›
For many developing nations, globalization has led to an improvement in standard of living through improved roads and transportation, improved health care, and improved education due to the global expansion of corporations. However, globalization has had a negative effect on individuals who live in developed nations.
