Industrial policy evaluation during economic liberalization in Mexico

Abstract

The Mexican macroeconomic policy has favored the stability of prices and the exchange rate since the early nineties. This has resulted in the absence of an active industrial policy that could promote economic development; instead a commercial policy was applied. The goal of this research is to evaluate whether or not this commercial policy contributed to raise growth rates of manufactures production, exports and gross fixed investment. We estimated a vector error correction mechanism with data from 1995 to 2015. None of the variables used by the commercial policy was significant as explicative of manufactures production growth. However, prices, exports and FDI contributed to increase gross fixed investment growth. The implication of the results is that outward oriented activities achieved better growth rates, however they had little effect on the rest of the economy. It is necessary to consider the application of a more active industrial policy in order to improve domestic production to satisfy domestic demand.