Like the rest of the poor periphery, Mexico fought with de-industrialization in
the century before the 1870s. Yet, Mexican manufacturing defended itself better
than did the rest of the poor periphery. Why Mexican exceptionalism? This article
decomposes the sources of de-industrialization into productivity events
abroad, globalization forces connecting Mexico to those markets, and domestic
forces. It uses a neo-Ricardian model to implement the decomposition, advocates
a price dual approach, and develops a new price and wage data base.
Mexican exceptionalism was due to weaker Dutch disease effects, better wage
competitiveness, and the policy autonomy to foster industry.
Brazil, Mexico and a few other Latin American republics enjoyed faster industrialization after 1870
than did the rest of Latin America and even faster than the rest of the poor periphery (except East Asia).
How much of this economic performance was due to more accommodating institutions and greater
political stability, changes that would have facilitated greater technology transfer and accumulation?
That is, how much to changing fundamentals? How much instead to a cessation in the secular rise
in the net barter terms of trade which reversed de-industrialization forces, thus favoring manufacturing?
How much instead to cheaper foodstuffs coming from more open commercial policies ('grain invasions'),
and from railroad-induced integration of domestic grain markets, serving to keep urban grain prices
and thus nominal wages in industry low, helping to maintain competitiveness? How much instead
to more pro-industrial real exchange rate and tariff policy? Which of these forces contributed most
to industrialization among the Latin American leaders, long before their mid 20th century adoption
of ISI policies? Changing fundamentals, changing market conditions, or changing policies?