Mexico

  • Source - Economist, Nov 24, 2018: "The big, beautiful Wall"     

    We built a wall 550 miles long in 2006 (Secure Fence Act). It had a negligible (crossings down by 0.6%) effect on Mexican migration. See this NBER working paper for details - “Border Walls” by Treb Allen, Cauê de Casto Dobbin and Melanie Morten. A better solution is to reduce trading costs between Mexico and the US which will benefit both countries and reduce wage discrepancies which attract Mexican migrants in the first place.

    From the article: "So what effect did the first 550 miles have? Not much, suggests an analysis by economists at Dartmouth and Stanford Universities. Arrests at the southern border dropped after the fence was built, but this cannot be attributed completely to the wall, since those years also saw a deep recession. Still, by using a confidential data source—the id cards issued by the Mexican government, through its consulate, to its citizens living as immigrants in America, many of them illegally—the economists have isolated the effect of the new fencing on migration flows. And they calculate that it reduced the number of Mexican citizens living in America by only 0.6%. Mexicans immigrate to America illegally because of the lure of high-paying jobs. Policies that increase wages in Mexico tend to drive down migration. Cross-border trade costs more than trade within America over the same distance due to tariffs and border delays. The authors simulate the effects of a 25% reduction in cross-border trade costs and find that migration would have shrunk more than under the Secure Fence Act (by an additional 34%). Yearly benefits for both uneducated and educated American workers would increase—by $59 per head and $81 per head, respectively."

  • Article: "How the bottom half lives  

    The Mexican government hopes to improve the lot of the south by creating special Economic Zones, which will have lower taxes or less regulation than the rest of a country.

    Northern Mexico is where the manufacturing happens, thanks in part tomaquilalaws that allow duty-free importation of materials as long as the finished product is exported.Between 1980 and 2000 these laws boosted the share of international trade in Mexico’s GDP from 11% to 32%. Southern Mexico is poorer and rural, with an economy based on agriculture. The Mexican government hopes to improve the lot of the south by creating special Economic Zones, which will have lower taxes or less regulation than the rest of a country. The intention is to promote investment in deprived areas with incentives that might be unaffordable, unpopular or unnecessary if applied nationally. First used in Ireland in 1959, they now number over 4,300 globally. (Commenters think the real problem in Mexico is widespread corruption - the nation is referred to as a “Mafiacracy").  

  • Source - Economist, Nov 10, 2018: "A misshapen economy"     

    Mexico's economy is surprisingly sluggish. Real GDP per person grew at an annual rate of 1.2% a year between 1995 and 2015 - one of the slowest rates in Latin America. Economist Santiago Levy (new book is Under-rewarded Efforts - The Elusive Quest for Prosperity in Mexico) believes the slow economic growth has to do with tax policies that create perverse incentives.

    From the article: "Mexico has a huge and disproportionate number of small businesses, and unusually wide variation in the productivity of its companies. The census under-counts small firms because it excludes those that lack fixed premises (such as taco stands) and those in villages of fewer than 2,500 people. Even so, more than 90% of the 4.1m firms in the 2013 census had at most five workers. And 90% of the total were “informal”, absorbing almost 33% of the capital stock and 40% of workers. Rather than “informality”, the key distinction Mr Levy makes is between firms that have salaried employees and those that do not. Four-fifths of the “informal” firms are in the second category: their staff are either self-employed or paid piece-rates or profit shares. These firms’ only legal obligation is to pay corporate tax, of just 2% of revenues if these are under 2m pesos ($105,000) a year. Firms with salaried workers, by contrast, must pay social insurance, deduct income tax and grapple with employment law (which doesn’t allow them to fire people if business drops). The census shows that firms with salaried workers are much more productive. So it is worrying that from 1998 to 2013 the weight of non-salaried firms in the economy grew. Mr Levy argues that public policies are to blame. In the name of social inclusion, in the period under study, Mexico introduced non-contributory pension and health benefits worth 1.3% of GDP, thereby helping non-salaried workers, while raising income taxes on salaried ones to the tune of 1.9% of GDP. 

    The solution? Levy thinks that Mexico needs to replace restrictions on firing with unemployment insurance and shift the tax burden away from payrolls, abolish tax perks for small firms and take contract enforcement more seriously. The prize would be faster growth, better social provision and better-paid jobs.