Julio López: Consequences of capital inflows for a middle income economy

Consequences of capital inflows for a middle income economy. Mexico’s experience

[dropcap]I[/dropcap]n the midst of these two crises a new economic strategy, which lacking a better term, we in Latin America have labeled Neo-liberalism, started to be implemented. From then onwards a large proportion of state firms, and the whole banking system, were privatized, the scope of state intervention was reduced and many institutions supporting State’s economic intervention were dismantled. Also, government expenditure has been kept to a minimum and the budget under strict control. During this recent stage economic growth has been low and, besides, the country suffered two deep crises, the first in 1995 and then a second in 2009.

In his lecture, the author carries out an assessment of Mexico’s recent economic strategy emphasizing financial liberalization and its macroeconomic impact. However, to set the context, he also discusses the two other main reforms undertaken in the period, namely trade liberalization, and conservative demand management. Mexico’s Neoliberal experience has obviously several specific peculiarities. Nevertheless, during the period under analysis the country has thoroughly implemented practically all the policies recommended under the neoliberal receipt, such that its experience stands out as almost a laboratory experiment of such a strategy.

The Neoliberal strategy understands economic growth as largely, if not mainly, dependent upon how the country can position itself into the international economy, and on the exogenously given growth rate of labor supply and growth rate of labor productivity. To synthesize the main macroeconomic consequences of this strategy, the author propose that the key words would be: booming manufacturing exports without manufacturing growth, financial exuberance, and stagnation. To a certain extent, these features correspond to different moments in the evolution of this regime: booming manufacturing exports cum financial exuberance predominated between 1988 and 1994, and stagnation from 1995 onwards.

[infobox title=’Julio López’]Professor of macroeconomics at Universidad Nacional Autónoma de México.[/infobox]