Mexico's Economic System: Trade, Industry, and Growth

Introduction: Mexico's Geography and Government

Mexico, officially the United Mexican States, is a country bordered by the United States, the Gulf of Mexico, and the Caribbean Sea to the north and east; Belize and Guatemala to the south; and the Pacific Ocean to the west (Concise Columbia, 2000). The country's capital is Mexico City, and its other major cities include Guadalajara and Monterrey.

Mexico's landscape is predominantly mountainous. While lowlands lie in the southeast and along the coasts, the heart of the country is the extensive Mexican Plateau, with elevations generally above 4,000 feet.

Mexico's government consists of executive, legislative, and judicial branches. The executive branch is headed by the president, who must govern according to law. The legislative branch is responsible for making laws and engaging with other countries on national issues.

Agriculture, Natural Resources, and Industry

In Mexico, a new president is elected every six years. The president serves as Supreme Commander of the Army, Navy, and Air Force and has the power to declare war on other countries with the consent of Congress. The Mexican Congress does not consider violence a preferred solution and seeks the use of peace treaties instead.

Since World War II, Mexico has enjoyed considerable economic growth (Concise Columbia, 2000). Agriculture engages about a quarter of the active workforce, and agricultural techniques are slowly being modernized. Major irrigation projects have increased crop yields. Cotton, coffee, sugar, and tomatoes are the country's major export crops, while corn, wheat, beans, and citrus fruits are grown in large quantities for domestic use. Livestock raising and fishing are also significant contributors to economic activity.

Mexico has substantial mineral resources, including immense petroleum reserves and deposits of zinc, sulfur, silver, antimony, copper, and manganese (OECD Paris, 1999). Leading industries, typically concentrated in Mexico's larger cities, manufacture iron and steel, motor vehicles, engines, processed foods, beverages, tobacco, refined petroleum and petrochemicals, chemical fertilizers, and other products. The country is also well known for its handicrafts, including pottery, woven goods, and silverwork. Mexico's chief ports include Veracruz, Tampico, Coatzacoalcos, Mazatlán, and Ensenada.

In the early 1980s, petroleum made up about three-quarters of Mexico's exports. During the mid-1980s, however, that figure dropped significantly. While the petroleum industry has since seen a substantial recovery, diversification of industry has helped prevent Mexico's trade economy from becoming dependent again on a single export.

Mexico's leading imports include machinery, steel, electrical and electronic equipment, chemicals, motor vehicle parts for assembly and repair, aircraft, manufactured consumer goods, and grain. The main exports are crude oil, petroleum products, coffee, sugar, cotton, tomatoes, shrimp, engines, motor vehicles, consumer electronics, silver, sulfur, and zinc (Mexico Connect, 1996–2000).

Trade, Exports, and Foreign Investment

In the past, the annual income from Mexico's imports exceeded the value of its exports (OECD Paris, 1999). In recent years, however, that balance has shifted, with exports bringing in more revenue than imports.

Foreign Direct Investment (FDI) plays a significant role in Mexico's economy (Concise Columbia, 2000). In 2000, Mexico received $22.5 billion in FDI, making it the largest recipient of foreign direct investment in all of Latin America. U.S. FDI, which constitutes the majority of investments, is concentrated in the manufacturing and financial sectors. However, Mexico subsequently experienced a sharp decline in FDI, as foreign investors decreased their commitments while waiting to see whether reforms in tax, energy, and labor policy would materialize.

The United States purchases approximately 85% of Mexico's exports, especially petroleum, cars, and electronic equipment (Mexico Connect, 1996–2000). There is considerable intra-company trade between the two countries. The most common U.S. exports to Mexico include motor vehicle parts, electronic equipment, and agricultural products.

Tourism is Mexico's third most important income producer. Popular destinations include Cancún, Puerto Vallarta, Acapulco, and Cozumel, as well as Mexico City and the country's highland cultural centers. In addition, remittances from Mexicans working — both legally and illegally — in the United States are crucial to the economy.