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Mexico's Economy: Events, Trade & Growth

Instructor: Christopher Muscato

Chris has a master's degree in history and teaches at the University of Northern Colorado.

Mexico is a big nation, and its economy is an important part of world affairs. In this lesson, we'll talk about the history of the Mexican economy and see what it looks like today.

The Mexican Economy

Mexico has been a major player in the global economy for . . . well, pretty much as long as there's been a global economy. It started as the main economic center of the colonial Americas, and today it is the 15th largest economy in the world and second largest in Latin America. Mexico makes things, Mexico buys things, and the people of Mexico control a number of global markets. At the same time, the Mexican economy has grown faster, and tanked harder, than nearly anyone else's at various points in its history. At different moments, the peso would only pay so much. Pay so, peso - get it? So, pay attention, because we're going to discuss one of the most complex economies in the world.

A Brief History of Mexico's Economy

Let's start with a brief look at Mexico since the nation gained independence in 1821. Mexico came into the world deeply in debt and spent the next century struggling to pay off loans to Spain, France, and Great Britain incurred during its independence wars. At one point in the 1860s this debt was so bad that France actually invaded Mexico. At the end of the century, Mexico managed to achieve some economic stability under president Porfirio Díaz, who industrialized Mexico City and opened the nation to foreign investors. Mexico saw its first balanced budget ever in the 1890s.

Porfirio Diaz
Díaz

Unfortunately, Díaz was not universally popular, and the economic progress made in the late 19th century was largely undone by the revolution against him in 1910. After the revolution, Mexico's presidents returned to the goal of economic growth. In the 1940s, the nation saw its first substantial growth since the revolution and liberal economic policies began seeing positive returns. The economy grew. Then it grew some more. Then it grew some more. In fact, from 1940 to 1970 Mexico's gross economy grew at a rate of 6.5 percent per year. That is such an incredible amount of growth that economists still refer to it as the Mexican Miracle.

Of course, that much growth could not last forever. After 1970, Mexico's economic growth began to decline. In an attempt to convince investors to keep their money in Mexico, the nation started looking more seriously at its role in global economies. In 1993, Mexico signed the North American Free Trade Agreement (NAFTA). This policy, which went into effect in 1994, opened up free trade between Canada, the USA, and Mexico. The goal was hemispheric unity and mutual strength, but it stands as one of the most controversial moves of the century. Some claim that Mexico benefited from NAFTA (the USA is still the largest consumer of Mexican products), while others argue that NAFTA allowed the USA to take advantage of Mexican industries by not paying import tariffs.

Signing of NAFTA
NAFTA

This debate became especially important because the same year NAFTA went into force, the Mexican economy imploded. Mexico had become very reliant on foreign investors, and a sudden shift in global consumer demands led to an instantaneous devaluation of the Mexican peso. In fact, this event, known as the Mexican Peso Crisis, was the worst economic depression in Mexico since the end of the Mexican Revolution. By some estimates, inflation increased in Mexico by up to 52 percent. The result was a destabilization of the economy, a legacy of debt as the US bailed out the Mexican government, and a political upheaval that ultimately resulted in Mexico's dominant political party losing the presidency for the first time in almost a century.

Mexico Today

So, where is Mexico's economy today? In the 21st century, the economy slowly recovered, resulting in national growth of roughly 2.5 percent by 2015. The nation is currently a global industrial center, and one of the global producers of oil, which is pretty handy. In fact, the government-owned oil company PEMEX is still one of the largest oil producers in the world and generates roughly $130 billion per year.

PEMEX
PEMEX

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