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Archives of Business Review – Vol. 8, No.12

Publication Date: December 25, 2020

DOI: 10.14738/abr.812.9535.

Ledesma-Carrion, D. E., Hernandez-Hernandez, L., & Mucino-Peorras, M. T. L. (2020). When An Economy Grows Around 2% For

Decades, Is It A Structural Problem? Archives of Business Research, 8(12). 203-217.

When An Economy Grows Around 2% For Decades, Is It A Structural

Problem?

Dora Elena Ledesma-Carrion

Researcher, National Institute

of Statistic and Geography, México.

Lidia Hernandez-Hernandez

Researcher, National Institute

of Statistic and Geography, México.

Maria Teresa Leonor Mucino-Porras

Indepent Researcher, México

ABSTRACT

Mexico for decades has grown around 2% annually, increasing

informal employment and poverty. Neoliberalism brought benefits to

certain sectors of society but widened the wage gap between

households. In recent years, the structural reforms proposed by the

government to lift Mexico from its economic slumber have caused

controversy. Twenty years ago it was believed that NAFTA would

activate the economy and improve the standard of living of all

Mexicans, but it did not. Applying optimization techniques in the

production functions under scenarios, this work shows the structure of

the economy and its impacts on households, mainly. A look at what has

been happening.

Key words: Production functions; economics activities parameters;

accounting multipliers.

INTRODUCTION

After the signing of NAFTA, Mexico contained inflation, built a solid macroeconomic framework,

and showed great openness to world markets. Many modern companies began to employ highly

skilled and well-trained workers, especially in the aerospace, automotive, food and beverage

industries [1]. However, there are industries in sectors of the economy that have been

characterized by generating high levels of informality, low-skilled work, low productivity and

obsolete technologies. Currently, approximately 54% of the economically active population (EAP)

have informal jobs, while those who provide their services through third parties lack, for the most

part, access to stable income, good education, health care and affordable financial services [1,2].

Government companies and monopoly firms have been protected against competition for decades,

especially the dominant companies in the energy and telecommunications sectors. For this reason,

these companies have earned large incomes from consumers and have not had sufficient incentives

to invest in or improve productivity. From the 1980s onwards, previous governments tried to solve

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URL: http://dx.doi.org/10.14738/abr.812.9535 204

Ledesma-Carrion, D. E., Hernandez-Hernandez, L., & Mucino-Peorras, M. T. L. (2020). When An Economy Grows Around 2% For Decades, Is It A

Structural Problem? Archives of Business Research, 8(12). 203-217.

these problems by implementing a series of reforms, but many of them were not completed, or

were reversed during their implementation, so they did not get the reforms expected results [2].

Mexico has embarked on a bold package of structural reforms to curb slow growth, low

productivity, widespread informality in the labor market, and high-income inequality. The

different economic agents that want to make the most of these reforms must strengthen their

institutional and governance capacity to ensure their effective implementation. Among the reforms

are the opening of its energy industry, in telecommunications, health and education [2].

This paper measures the shocks of production functions of the Mexican economy for the year 2012

from a matrix of social accounting (SAM-MX12) based on the system of national accounts (SCNM)

[3]. SAM type of Defourny and Thorbecke [4]. The income distribution was obtained from the

National Household Income-Expenditure Survey (ENIGH) in terms of minimum salaries. From the

analysis of Leontief accounting multipliers, direct multipliers are show in table 1. The most valued

branch of economic activity is the manufacture of products derived from oil and coal (key activity)

and Figure 1 summarizes the results for direct, crossed and cyclic multipliers. The value of the net

multiplier, which follows the most intensive route, is 0.02034662. Cyclical multipliers at the end of

the trajectory lead to the most intensive activity, which is the wholesale of groceries and food,

followed by renting without real estate brokerage, the manufacture of petroleum and coal

derivatives, and the slaughter, packaging and processing of meat: poultry, cattle and others.

Table 1. General direct multipliers more intensive. SCIAN (North American Industry Classification

System)[14].

SCIAN DESCRIPTION Multiplier %

3241 Manufacture of petroleum and coal products 1.329490

2122 Metal ore mining 1.197725 9.91%

3343 Manufacture of audio and video equipment 1.184583 10.90%

3251 Manufacture of basic chemicals 1.181932 11.10%

3122 Tobacco industry 1.162542 12.56%

3221 Manufacture of pulp, paper and cardboard 1.150749 13.44%

3151 Manufacture of knitwear 1.143736 13.97%

3336 Manufacture of internal combustion engines, turbines and

transmissions 1.124497 15.42%

3325 Manufacture of hardware and locks 1.119999 15.76%

3311 Basic iron and steel industry 1.116002 16.06%

3273 Manufacture of cement and concrete products 1.113702 16.23%

3313 Basic aluminum industry 1.113397 16.25%

3366 Boat manufacturing 1.098100 17.40%

3314 Non-ferrous metal industries, except aluminum 1.097983 17.41%

2121 Coal mining 1.097296 17.46%

3115 Manufacture of dairy products 1.096902 17.49%

3363 Manufacture of parts for motor vehicles 1.091735 17.88%

5511 Corporate 1.091087 17.93%

3113 Manufacture of sugars, chocolates, sweets and the like 1.086948 18.24%

3344 Manufacture of electronic components 1.084740 18.41%

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Figure 1 shows direct, cross and cyclical multipliers for the economic branch of the manufacture of

petroleum and coal products. As can be seen, this is related to the extraction of oil and gas, which

occupies the 74th place in the list of direct multipliers for the economy as a whole (table 1 only

shows the first 20). There is a large difference in the direct multiplier values of 31.3% between the

next economic activity which is again the manufacture of petroleum and coal products. The

successive branches already show greater differences of 89%, for example, the manufacture of

basic chemical products (89.9%), wholesale of grocery and food (96.1%), multiple banking

(99.4%), among others. With regard to cross-multipliers, the difference between the tenth and the

first decile of income of the beneficiary households by this economic branch is enormous, at least

1750%. And between the first two deciles of about 43%. The trajectory closes with the cyclical

multipliers, the most remarking economic branch is the wholesale grocery and food trade, where

the difference between income levels of households is minimal ~ 2.4%. It is followed by the rental

without real estate brokerage with a difference in impact of 12.7%, manufacture of petroleum and

coal products (56.7%) and the differences increase rapidly. Therefore, Mexico became a merchant

and service provider and not in a productive country that explored its inputs and optimized its

production processes through technological innovations.

Figure 1. Accounting multipliers belonging to the country's strongest economic activity:

Manufacture of petroleum and coal products. The number that appears in the box with rounded

corners is the place that economic activity occupies in the list from highest to lowest value of the

direct multiplier.

Manufacture of

petroleum and coal

products 1 (key)

Extraction of oil and

gas (strategic) 74 Manufacture of

petroleum and

coal products

Manufacture of

basic chemical

products (key) 4

Wholesale of groceries

and food (strategic) 55

Corporates

(strategic) 18

Machining of metal

parts and

manufacture of screws

(driving) 92

General cargo

haulage (strategic)

97

Business

management

services (key)

94

Employment

service

(strategic)

119

Generation,

transmission and

distribution of electric

energy (key) 83

Multiple bank

(strategic)

133

D1 0.00029 D2 0.00041

D3 0.00047 D4 0.00056

D5 0.00068 D6 0.00078

D7 0.00094 D8 0.00112

D9 0.00156 D10 0.0054

D1 0.00181

D2 0.00259

D3 0.00293

D4 0.00354

D5 0.00428

D6 0.00491

D7 0.00591

D8 0.00703

D9 0.00984

D10 0.0340

D1 0.00405

D2 0.00581

D3 0.00656

D4 0.00794

D5 0.00958

D6 0.01099

D7 0.01325

D8 0.01576

D9 0.02206

D10 0.07614

D1 0.01313

D2 0.01883

D3 0.02129

D4 0.02574

D5 0.03108

D6 0.03565

D7 0.04298

D8 0.05112

D9 0.07153

D10 0.24695

D1 0.00890 D2 0.01276 D3 0.01443

D4 0.01745 D5 0.02107 D6 0.02417

D7 0.02914 D8 0.03466 D9 0.04850

D10 0.16742

D1 0.00022 D2 0.00031, 40.9% D3 0.00035, 59.1%

D4 0.00042, 90.9% D5 0.00051, 131.8% D6 0.00059, 168.2%

D7 0.00071, 222.7% D8 0.00084, 281.8% D9 0.00118, 436.4%

D10 0.00407, 1750%

D1 0.00302 D2 0.00433, 43.4% D3 0.00490, 62.3%

D4 0.00592, 96% D5 0.00715, 136.8% D6 0.00820,

171.5% D7 0.00989, 227.5% D8 0.01176, 289.4%

D9 0.01646, 445% D10 0.05683, 1781.8%

D1 0.00643

D2 0.00921

D3 0.01042

D4 0.01260

D5 0.01521

D6 0.01745

D7 0.02103

D8 0.02502

D9 0.03501

D10 0.12086

D1 0.00019 D2 0.00028, 47.4%

D3 0.00032, 68.4% D4 0.00038, 100%

D5 0.00046, 142.1% D6 0.00053, 178.9%

D7 0.00064, 236.8% D8 0.00076, 300%

D9 0.00106, 457.9% D10 0.00366,

1826.3%

D1 0.00735

D2 0.01055

D3 0.01192

D4 0.01442

D5 0.01741

D6 0.01997

D7 0.02407

D8 0.02863

D9 0.04007

D10 0.13831

D1 0.00085 D2 0.00122, 43.5%

D3 0.00138, 62.4% D4 0.00167, 96.5%

D5 0.00202, 137.6% D6 0.00232, 172.9%

D7 0.00279, 228.2% D8 0.00332, 290.6%

D9 0.00465, 447.1% D10 0.01604, 1787.1%

Wholesale of groceries and food D1 0.218977, D2-10 0.213748

Rental without real estate brokerage D1 0.191188, D2-10 0.186622.....12.7%

Manufacture of petroleum and coal products D1 0.094775, D2-10 0.092512......56.7%

Killing, packing and processing of meat from poultry, cattle and other edible animals D1 0.049461, D2-10 0.048279.....77.4%