O México abriu sua economia. Por que não ficou rico?

The years 1990 marked an epic period in trade liberalization for the United States, Mexico, and Canada. In 1994, NAFTA came into effect, while the Visegrád Group countries – Poland, Hungary, Czech Republic, and Slovakia – integrated with Europe, eventually joining the European Union in 2004. Thirty years later, it is essential to understand the outcomes of these integration processes.

While the Visegrád Group countries grew substantially, with their average income converging towards the European standard, Mexico lagged behind and saw a worsening of its average per capita income in comparison to American income. Mexico boomed early on in NAFTA and after the Tequila Crisis, but started falling behind early in the new millennium, a trend that intensified under the first Trump administration and the rise of Andrés Manuel López Obrador.

Mexico grew slower than Brazil since NAFTA's inception, a fact that would have seemed absurd in 1994. Why has Mexico performed so poorly? If Mexico was a relative loser, who reaped the greatest benefits from its commercial integration? Several hypotheses could explain this performance difference. First, NAFTA and European integration are not the same.

Both entail wide commercial liberalization, including tariff reduction or elimination and investment protection. However, they differ in important aspects. European integration included the creation of a single market of services, although this dimension remained incomplete, as demonstrated by banking services. It also implied free movement of capital and people.

In the North America, the pipelines of the labor market also functioned, partly through legal and illegal Mexican immigration to the US, as evidenced by remittance flows. However, this mechanism occurred largely outside a formally integrated labor market, making it likely less efficient. European integration also required reform of the institutions of the entering countries.

NAFTA integrated markets, while the EU conditioned the entry of candidate countries to a profound institutional transformation. A second hypothesis is that Mexico failed to address a key issue that undoubtedly affects its productivity: the excess of informality in the economy, which accounts for around 55% of the labor force, the highest in the OECD.

For comparison, this same indicator stands at less than 9% in Poland. The high number of small businesses operating outside the formal system limits efficiency and growth. Informal firms have less access to credit, technology, external markets, and management. All these factors work against productivity expansion. Mexico's educational deficit also remains unsolved.

Between 2000 and 2024, according to UNESCO, Mexico added 2.5 years of education to its population over 25 years old. The Mexican today has about 10 years of average schooling, practically the same as Brazil, which nevertheless increased schooling by 4 years during the same period. Both are below the Eastern European number, which stands at around 13.

The competitiveness structure of the Mexican economy, in public and private dimensions, especially in sectors like energy, telecommunications, cement, and fuels, is another disadvantage. In some of these markets, barriers to entry and high concentration limit productivity gains. Another potential factor explaining Mexico's poorer growth could be a lower investment rate than the others.

However, this is not the case. Gross fixed capital formation in Mexico, close to 23% during the period, was higher than the US (and Brazil), and similar to the Visegrád Group. Despite investing a proper share of GDP, Mexico did not transform that investment into growth at the same proportion. The question, therefore, seems to lie less in how much Mexico invested and more in the effectiveness of that investment.

Clearly, the comparison is not perfect: the Visegrád Group countries started from a very particular institutional and economic position after the transition from socialism. Nevertheless, the experience is useful because it allows observing two large processes of opening and economic integration occurring over a similar period in emerging economies.

Mexico's experience suggests that commercial liberalization is an important condition but not sufficient to produce income convergence. The comparison with the Visegrád Group suggests that institutions, human capital, competition, and deeper economic integration could be decisive to transform commercial opening into productivity gains.

Between the end of the AMLO government and the first months of Claudia Sheinbaum's administration, Mexico has adopted a series of state reforms, including the election of judges at all levels, the elimination of several regulatory agencies with the transfer of their functions to government bodies, and the strengthening of the role of state-owned enterprises in the electricity sector, among other controversial points.

Combined with the pressure from Trump for a renegotiation of the USMCA in favor of the US and the difficulty Mexico has had in controlling crime, it is difficult to imagine how Mexico could improve its performance in the next 30 years.