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.
|Date of creation:||Jul 1996|
|Date of revision:|
|Contact details of provider:|| Postal: 6 East 16th Street, New York, NY 10003|
Web page: http://www.economicpolicyresearch.org
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Taylor, Lance, 1985. "A Stagnationist Model of Economic Growth," Cambridge Journal of Economics, Oxford University Press, vol. 9(4), pages 383-403, December.
- A. Asimakopulos, 1975. "A Kaleckian Theory of Income Distribution," Canadian Journal of Economics, Canadian Economics Association, vol. 8(3), pages 313-33, August.
- 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, December.
- 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 466-89, September.
- 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.
When requesting a correction, please mention this item's handle: RePEc:epa:cepawp:1996-04. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bridget Fisher)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.