Publication | The Impact of Crime and Violence on Economic Sector Diversity

By Viridiana Rios, Mexico Institute Global Fellow
December 21, 2015, Harvard University

Abstract:

Literature has focused attention on identifying whether crime and violence impact growth via changes in economic factor accumulation, i.e. reducing labor supply or increasing capital costs. Yet, much little is known as to how crime and violence may affect how economic factors are allocated. Using a unique dataset created with a text-analysis algorithm of web content, this paper traces a decade of economic activity at the subnational level to show that increases in criminal presence and violent crime reduce economic diversification, increase sector concentration, and diminish economic complexity. An increase of 9.8% in the number of criminal organizations is enough to eliminate one economic sector. Similar effects can be felt if homicides rates increase by more than 22.5%, or if gang-related violence increases by 5.4%. By addressing the impact that crime has on the diversification of production factors, this paper takes current literature one step forward: It goes from exploring the effects of crime in the demand/supply of production factors, to analyzing its effects on economic composition.

Download the paper here.

New Publication: Now for Public Debt in Mexico: Policy Lessons for the Effective Oversight of State and Municipal Government Finances

mexican pesosBy Heidi Jane M. Smith

Read the publication

While Mexico has a very low debt-to-GDP ratio that is slightly above forty percent, its state and municipal portion hovers around 2.5% (IMF, World Economic Outlook Databases, 2012). Subnational governments have consistently been accused of taking on too much debt, allowing irresponsible repayment plans and consenting to outright political corruption. Especially since 2001, the first full year since the country revised its laws governing subnational borrowing rights, Mexico has experienced a significant rise in the indebtedness of its states and municipalities. During the past decade, total subnational debt went from $990 pesos per capita in 2001 to $3,450 pesos per capita in 2011 (ASF 2011). Although Mexico’s overall subnational debt is still at reasonable levels compared to other countries, this nation’s high vertical fiscal imbalances and de facto soft subnational budget constraints could continue to fuel observed trends unless national legislation governing the rights and responsibilities of subnational governments are made. One can argue that the pace of increasing debt has been constant, but it accelerated during the 2009 economic crisis when National GDP decreased substantially (around -6%). Actual proposals to harmonizing accounting standards among state and local governments, increase transparency and improve reporting requirements by the Mexican Ministry of Finance (Secretaría de Hacienda y Crédito Público, SHCP) are only a few steps towards improving fiscal policy at the local level. Reviewing policies to understand debt sources and improving bankruptcy laws to cope with moral hazard issues will help to maintain strong sustainable fiscal balances into the future.

This policy paper argues that alternative revenue sources are necessary for economic growth at the local level, but continued soft budget constraints and lax regulatory environments may also put Mexico’s future into jeopardy. Lessons learned from the United States’ state and municipal financing could provide valuable policy options for Mexico–thus, the paper provides policy recommendations for future public financial management considerations.

Read the publication

Keynote Speech: Opportunities and Challenges for Mexico Today

10/29/2015 The International Trade Journal

By Diana Villiers Negroponte

Abstract

Since its pre-colonial history, Mexico has demonstrated two contrary tendencies: the outward-looking, global trader and the protective, nationalist instinct. Today, the seven major constitutional reforms of the PRI government reflect the former. However, the teacher’s union, some presidential advisors, and the criminal justice system reflect a preference for the latter. The more progressive sectors of Mexican society assert the need to participate in the global economy, but latent protective and nationalist tendencies throw up challenges. This article examines several contemporary examples of each tendency and demonstrates how they coexist uneasily in modern Mexico.

This article was published by our Advisory Board Member Diana Villiers Negroponte in the International Trade Journal (Volume 29, Issue 5, 2015). Click here to read the full article

 

Best Forecaster for Mexican Peso Doesn’t Really Look at Mexico

11/18/2015  Bloomberg

mexican pesosThe best forecaster for the Mexican peso is a 36-year-old economist in Warsaw who says he barely keeps tabs on what’s going on in the Latin American country.

The key to correctly predicting moves in the most-traded emerging-market currency is to focus on global sentiment toward developing nations and the outlook for monetary policy in the U.S., Europe and Japan, according to Przemyslaw Kwiecien, the chief economist at X-Trade Brokers SA, a 13-year-old firm that caters to mom-and-pop currency traders.

“We look at the global environment, especially for emerging-market currencies that are very often driven by external factors,” Kwiecien, who worked as an adviser to Poland’s Finance Ministry before joining X-Trade in 2007, said in an interview. “This is how I try to channel all the macroeconomic releases that we receive every day, through the thinking of central bankers.”

Read more…

The Senate Has Delayed Confirming an Ambassador to Mexico. America Needs One Now.

11/5/2015 The National Interest

By Duncan Wood and Andrew Selee, Wilson Center

mexican-flag1The U.S. Embassy in Mexico City has been without an ambassador since July. It’s not all that unusual for an embassy to be vacant for a few months, but then again, this is not a usual relationship. Not only is this one of the largest U.S. embassies in the world, but it is the hub for managing one of our country’s most complex and important relationships, and one that has tangible value for millions of Americans in their daily life.

To begin with, Mexico and the United States trade over a half-trillion dollars’ worth of goods and services a year, or more than a million dollars a minute, only slightly behind Canada and China as America’s third-largest commercial relationship. What’s more, Mexico is the United States’ second-biggest export market, ahead of China, and people in twenty-seven states—from Texas and Arizona to Nebraska, Iowa, Michigan, and even New Hampshire—depend on Mexico as the first or second destination for exports produced in their state. Around six million U.S. jobs are closely tied to exports to Mexico.

Read more…

New Publication | Managing the Mexico-U.S. Border: Working for a More Integrated and Competitive North America

By Sergio Alcocer

Anatomy of a RelationshipThe border between Mexico and the United States is one of the most dynamic in the world. The United States and Mexican border states together represent the world’s 4th largest economy, see more than $500 billion dollars per year in bilateral trade, and house 56 crossing points where nearly 300,000 vehicle crossings take place on a daily basis.

Our countries have always had a complex and intertwined relationship and have established different and successful mechanisms to manage border matters. At present, the level of cooperation between Mexico and the United States on border issues is the highest testament of the maturity and strength of the bilateral relationship. Positive synergies are now in place, our common values and cultural ties are nowhere more visible than at our shared border, benefitting both societies.

This essay aims to offer a holistic approach and view of the border region. It focuses on the key aspects that comprise it, and also explains the mechanisms established by Mexico and the United States, describing the strong collaboration that has been accomplished by both countries.

The above text is an excerpt from the introduction to the essayThis essay is part two of our series “The Anatomy of a Relationship: A Collection of Essays on the Evolution of U.S.-Mexico Cooperation on Border Management.”

Read the essay here. 

How To Make Mexico More Competitive: More Corporate Ethics & State Efficiency, Less Corruption

10/21/2015 Mexico Institute-Forbes Blog

By Viridiana Rios

Between 2013 and 2014, Mexico approved historically needed reforms to increase competition, strengthen financial markets, reduce energy costs, improve the quality of education, and make labor markets more flexible.

Yet, according to the figures published just last week by the World Economic Forum (WEF), the country’s competitiveness ranking remains the same as it was a decade ago. Despite Congressional approval of the structural reforms that analysts and observers have demanded for years, there has been little evidence that Mexico is significantly more competitive than it was in 2005.

Read more…