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Endogenous Growth and Comparative Standards of Living between Mexico and the US

  • Alejandro Rodríguez Arana

This paper calibrates an AK model of growth for Mexico. Investment financing is modeled considering the domestic savings ratio as well as net factorial income and capital inflows of the balance of payments. Productivity A and the rate of depreciation of capital are found using econometric techniques. According to this model, actual parameters determining growth in Mexico are compatible with a sustained long run rate of growth of about 3.6%. At the same time, under these circumstances the ratio of the Mexican GDP to US GDP would be growing in time. The model is very sensible to the parameters and depends strongly of Mexicans living in the US and transferring remittances to Mexico, nonetheless. If remittances were eliminated, the actual rate of domestic savings would not be compatible with positive growth in the long run, which implies that relatively speaking the domestic savings rate in Mexico is very low. The paper concludes that to assure a positive growth that improves standards of living and the relative size of Mexico with respect to the US, it is necessary to implement policies oriented to increase the domestic savings rate and productivity. Otherwise there are high risks of macroeconomic crises in the future.

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Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c010_035.

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Length: 28 pages JEL Classification:
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:deg:conpap:c010_035
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  1. T. W. Swan, 1956. "ECONOMIC GROWTH and CAPITAL ACCUMULATION," The Economic Record, The Economic Society of Australia, vol. 32(2), pages 334-361, November.
  2. Rebelo, Sergio, 1991. "Growth in open economies," Policy Research Working Paper Series 799, The World Bank.
  3. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  4. Khaled Hussein & A. P. Thirlwall, 2000. "The AK Model of "New" Growth Theory Is the Harrod-Domar Growth Equation: Investment and Growth Revisited," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 22(3), pages 427-435, April.
  5. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 500-521, June.
  6. Anthony Philip Thirlwall, 1979. "The Balance of Payments Constraint as an Explanation of International Growth Rate Differences," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 32(128), pages 45-53.
  7. Kaldor, Nicholas, 1970. "The Case for Regional Policies," Scottish Journal of Political Economy, Scottish Economic Society, vol. 17(3), pages 337-48, November.
  8. Gerhard Sorger, 2003. "On the Multi-Country Version of the Solow-Swan Model," The Japanese Economic Review, Japanese Economic Association, vol. 54(2), pages 146-164.
  9. Mamgain, Vaishali, 1999. "Are the Kaldor-Verdoorn Laws Applicable in the Newly Industrializing Countries?," Review of Development Economics, Wiley Blackwell, vol. 3(3), pages 295-309, October.
  10. Itay Goldstein & Assaf Razin, 2005. "Foreign Direct Investment vs. Foreiegn Portfolio Investment," NBER Working Papers 11047, National Bureau of Economic Research, Inc.
  11. Solow, Robert M., 1979. "Another possible source of wage stickiness," Journal of Macroeconomics, Elsevier, vol. 1(1), pages 79-82.
  12. Swan, Trevor W, 2002. "Economic Growth," The Economic Record, The Economic Society of Australia, vol. 78(243), pages 375-80, December.
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