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

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  • Alejandro Rodríguez Arana

Abstract

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.

Suggested Citation

  • Alejandro Rodríguez Arana, 2005. "Endogenous Growth and Comparative Standards of Living between Mexico and the US," DEGIT Conference Papers c010_035, DEGIT, Dynamics, Economic Growth, and International Trade.
    • Handle: RePEc:deg:conpap:c010_035
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    References listed on IDEAS

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