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NAFTA, the Peso Crisis, and the Contradictions of the Mexican Economic Growth Strategy



This paper analyzes the causes of the massive peso devaluation of December 1994 and the ensuing economic crisis in Mexico. The paper argues that, while earlier devaluation might have been helpful, Mexico's economic growth strategy in the early 1990s was fraught with internal inconsistencies that made a collapse of that strategy inevitable. Especially, Mexico's use of the nominal exchange rate as an "anchor" to control inflation resulted in a real overvaluation of the peso in 1990-94, which combined with the liberalization of foreign trade led to unsustainable current account deficits financed by volatile inflows of "hot money." Since the devaluation, the Mexican government is counting on increased net exports and direct foreign investment to be the "engine of growth," while maintaining tight fiscal and monetary policies that suppress domestic demand in order to control inflation. The paper argues that Mexico is trying an economic strategy based on a redistribution of income from wages to profits, and evaluates the prospects for this regressive redistributional strategy to succeed or fail.

Suggested Citation

  • Robert A. Blecker, 1996. "NAFTA, the Peso Crisis, and the Contradictions of the Mexican Economic Growth Strategy," SCEPA working paper series. SCEPA's main areas of research are macroeconomic policy, inequality and poverty, and globalization. 1996-04, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
  • Handle: RePEc:epa:cepawp:1996-04

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    References listed on IDEAS

    1. Ros, Jaime & Skott, Peter, 1998. "Dynamic Effects of Trade Liberalization and Currency Overvaluation under Conditions of Increasing Returns," The Manchester School of Economic & Social Studies, University of Manchester, vol. 66(4), pages 466-489, September.
    2. Gary Clyde Hufbauer & Jeffrey J. Schott, 1992. "North American Free Trade: Issues and Recommendations," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 71, January.
    3. repec:mes:challe:v:38:y:1995:i:2:p:12-19 is not listed on IDEAS
    4. Taylor, Lance, 1985. "A Stagnationist Model of Economic Growth," Cambridge Journal of Economics, Oxford University Press, vol. 9(4), pages 383-403, December.
    5. Robinson, Joan, 1978. "Contributions to Modern Economics," Elsevier Monographs, Elsevier, edition 1, number 9780125905503.
    6. A. Asimakopulos, 1975. "A Kaleckian Theory of Income Distribution," Canadian Journal of Economics, Canadian Economics Association, vol. 8(3), pages 313-333, August.
    7. Robinson, Sherman & Burfisher, Mary E. & Hinojosa-Ojeda, Raul & Thierfelder, Karen E., 1993. "Agricultural policies and migration in a U.S.-Mexico free trade area: A computable general equilibrium analysis," Journal of Policy Modeling, Elsevier, vol. 15(5-6), pages 673-701.
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    Cited by:

    1. Block, Thorsten H., 2002. "Economic stagnation in Weimar Germany: a structuralist perspective," Structural Change and Economic Dynamics, Elsevier, vol. 13(2), pages 127-150, June.
    2. Robert A. Blecker, 2006. "Macroeconomic and Structural Constraints on Export-Led Growth in Mexico," Working Papers 2006-05, American University, Department of Economics.
    3. Pennelope Pacheco-Lopez & Anthony P. Thirlwall, 2004. "Trade liberalisation in Mexico: rhetoric and reality," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 57(229), pages 141-167.


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