Industrialization of Mexico

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Table of Contents

Industrialization
Brief background of the industrialization process in Mexico
Role of the PRI in Mexican politics and economic policies
The adoption of import substitution industrialization (ISI)
Import substitution industrialization
Factors that made industrialization possible in Mexico
Disadvantages of the ISI
References
Footnotes

Industrialization

Industrialization is a phenomenon that comprises both social and economic changes in society often due to disparate factors. In most areas of the world, the industrialization process occurred after the Agrarian Revolution, which was between the 17^th and 19^th centuries, following an increasing demand for basic commodities to satisfy the ever-growing populations.

Additionally, the founding of the Americas in the 16^th century paved the way for the development of new products resulting in the creation of new markets for both primary and manufactured goods on the scale that few had anticipated. The process required most societies to adopt various social and economic transformations to create the right environment for the accommodation of technological innovations and advancements depending on the countries’ unique situations.

In most settings, changes in the way people conducted trade and demand for commodities led to the transformation of political policies to create financial benefits for states as well as individual populations. However, in some instances, as is the case with Mexico, political policies played a bigger role in the institution of industrialization as compared to economic forces such as supply, demand, and availability of resources.

In the former scenario, the reorganization of society depended largely on social interactions affecting trade, thus allowing market forces to control the industrialization process freely with support from governments through policy enforcement.

This aspect essentially means that the progression of the process was not dependent on political institutions, but free social and economic interactions amongst individuals in different societies. In the latter case, the political class dictated the speed and direction of the industrialization process, thus forcing society to conform and adapt to the changes.

This paper comprises a case study of the latter scenario focusing on the industrialization of Mexico as the main example. The paper explores the country’s transition into import substitution industrialization (ISI)¹, Reasons why the Mexican government and the political elites of the PRI who ran it for many decades, chose ISI as the strategy of choice, and some of the benefits that the strategy had on the Mexican economy.

The paper also takes an objective look at some of the limitations that the ISI strategy had on the economy and some of the changes that have occurred since the inception of the industrialization process to establish whether the ISI process would work for other developing countries looking to adopt this method of transition into industrialization.

Brief background of the industrialization process in Mexico

The preference of the Institutional Revolutionary Party that held power in Mexico for several years for import substitution industrialization was historically evident and politically expedient, given the country’s colonial history. During the era of Porfirio Diaz – the twenty-ninth president of Mexico between the years 1884 and 1911 before his deposition, Diaz exercised political control over the country’s economy through the application of the authoritarian rule and use of military tactics.

Although Diaz was infamous for his repressive leadership tactics, he also left a legacy of internal economic stability and substantial economic growth through control and manipulation of the country’s economic situation at the time. The Mexican leader enjoyed close diplomatic ties with the United States after being assisted in taking over power. Before then, the US had played a critical role in helping the country attain independence.

Soon after independence, the leaders who took over the management of government affairs in Mexico were dictators, and this discouraged the US from developing any trade links with the country. Abraham Lincoln had played a role in the overthrow of Maximilian’s government accusing the leadership of ruling with an iron fist. Even though Diaz was a dictator, he allowed American companies to own several shares in the country, something that encouraged him to institute various economic reforms.

Many citizens had moved to the US due to the repressive policies introduced by Diaz. The immigrants provided the much-needed labor that played a role in the development of trade ties between the two countries. By 1910, the American industrial investment in Mexico had grown significantly up to forty-five percent forcing the US government under the leadership of Woodrow Wilson and William Howard to intervene.

His ‘no re-election’ slogan earned him favor with the people and created a false sense of democracy, especially considering the view that he often picked a candidate that he could manipulate into doing his bidding as his successor and endorsed the person to the public (Lewis, 2004).

Diaz’s first goal over his twenty-six years of leadership was establishing lasting peace to redeem the image that the international community had of Mexico, which was ridden with strife with little chance of economic progress. His way of maintaining peace involved suppressing banditry using the countryside police officers, giving competing forces such as the Mestizo’s government positions, and refraining from interference with the wealth of the elite Creoles.

At this time, the Mexican society had a rigid social structure based on the cast system whereby people were categorized into four castes. The European caste, which was mainly made up of Spanish, was the highest the rank and it was expected to control the economic and political activities in the country.

Additionally, a Spanish born in Spain held a higher position as compared to the other one born and brought up in Mexico who was commonly referred to as Creoles. Individuals born out of Spanish and Indian parents were considered second and were referred to as mestizo. The third caste was made up of the Indians who were mainly the locals, whereas the last caste was made up of slaves who were Africans.

However, in the same breath, Diaz dissolved local authorities, employed his closest allies in high-ranking administrative positions, suppressed the media, and took control of lands rich in minerals such as copper (Lewis, 2004). He encouraged foreign investment in the mining sector in the northern border region of the country by giving limited access to investors for a set fee. As already mentioned, the US-funded over forty-five percent of all projects in Mexico.

The majority of people in the rural areas worked in large-scale wheat and grain farms in the central region. There were few revolts at the time due to the increase in economic growth and the violent means with which the government quelled such uprisings. The Mexican citizenry deposed Diaz after imprisoning his main opponent in the 1911 elections in a bid to secure a second term in office, which was contrary to his ‘no re-election’ policy.

In essence, Porfirio Diaz’s way of dealing with political problems and the resultant success of control over the country’s economy played a significant role in the establishment of a state-controlled economy between the 1950s and 1960s, through the initiation of import substitution industrialization.

Although his successors adopted a liberal manner of dealing with social freedoms in the political arena, the politics behind the economic growth strategy for the country exhibited a less liberal approach. This means the government-owned and controlled all major industries in the economy.

For instance, the government had the right to influence the prices of goods and services as it was argued that consumers had to be protected from the foreign companies that were simply interested in making profits at the expense of the locals. Again, government regulation was a present feature in the economy since the state had an aim of helping the local companies to develop by protecting them from multinational corporations that enjoyed economies of scale.

Role of the PRI in Mexican politics and economic policies

PRI party played a great role in the formulation of the economic and political policies that continue to influence industrialization in Mexico. The country controlled the government for over seventy years have changed the name to the Party of the Mexican Revolution from the National Revolutionary Party. The government of Luis Echeverria increased government’s spending between 1970 and 1976 by expanding the civil service and initiating several projects.

The country depended mostly on oil production, but it was forced to borrow following the upsurge of the oil prices globally. Unfortunately, the government’s behavior led to inflation since the state had to increase taxes to fund the major programs. The fuel prices could not be sustained globally, leading to the invention of other sources of energy, which consequently resulted in the decline of the oil prices. The local currency lost value, and traders faced challenges trading with the US and other neighbors.

The national bank had to develop a strategy to prevent further devaluation by borrowing over three-hundred and sixty dollars from the Federal Reserve of the United States with the aim of stabilizing the economy. The country had a huge debt of over twenty-five billion dollars. In August 1976, the party officials, in consultation with the president, decided to float the local currency whereby the peso lost its value further.

The head of state decided to stand down and allow the finance minister to contest for presidency hoping that the country would regain its financial glory. The incoming president promised to protect the peso like a dog arguing that the president who devalues the currency would be devaluing him or herself.

This had a negative consequence on the economy since the state was forced to borrow further even after discovering the oil sites in Tabasco and Campeche. It is noted that the party played a major role in the economic challenges that faced the country afterward leading to its overthrow.

The adoption of import substitution industrialization (ISI)

In the early 1920s, after the deposition of Porfirio Diaz, a large part of the Mexican population took advantage of the existence of policies on free movement between the country and the United States in a bid to obtain gainful employment as laborers in the US. The American government, in turn, took advantage of the abundant availability of cheap labor on its borders and established the Emergency Quota Act in 1921, which essentially restricted immigration into the US except for immigrant laborers from Mexico.

As part of the Act’s provisions, the American government reserved the right to keep a small percentage of every laborer’s earnings for payment to such laborer on the day he or she agreed to move back to Mexico. This provision aimed at ensuring that the stay for immigrants was temporary, although it did not quite achieve its desired effect.

In the 1930, the Great Depression caused economic strain on the American government, thus forcing it to curtail further immigration exceptions to Mexican laborers, which in turn caused strain on the Mexican government in terms of provision of primary needs such as food and power supply for its population (US Library of Congress, 2014).

In the years between 1934 and 1951, the Mexican government, under the leadership of President Miguel Aleman established high protectionist tariffs aimed at increasing the production of consumer goods mainly for the local market. After the economic depression of the 1930s, many governments realized that the protection of local companies was critical in the preservation of the economy.

Unfortunately, economists are against the protectionist’s policies since competition is beneficial to any sector in the sense that it helps in boosting standards. However, the protectionist policies protected the business interests of individual owners of large-scale wheat and grain plantations and did little to solve the labor problem in the country, thus causing uprisings, which made Mexico a less attractive market for investors in the international community (Haber, 1995).

In 1970, the government fully adopted import subsidization in a bid to resolve some of the problems it was experiencing with the populace. Although it placed strict policies on consumer goods such as agricultural products, it kept its doors open to capital investments.

The main reason behind such reservation on investments is that the government lacked the financial capacity to initiate the import substitution process fully because tax revenue was not enough to sustain the provision of basic social amenities while providing financial backing for the establishment of more industries (Perereault& Martin, 2005). In other words, the government was unable to establish and sustain a social welfare system to please the populace even though it had made commitments to do so previously.

Unfortunately, the government could not borrow money to fund various stalled projects because the existing global financial institutions at the time, including World Bank and the International Monetary Fund, had strict conditions that all borrowers were expected to meet before being considered for loans. Surprisingly, Mexico was termed one of the states that violated human rights, and this made it difficult to be considered for financial assistance.

This approach resulted in self-sufficiency as far as food production was concerned and allowed enough production of primary consumer goods for export to the international markets. One of the effects of the new approach was the switch to alternative imports.

Imperialism played a role in the establishment of the ISI policies because the powerful foreign powers put much pressure on the government to make adjustments. The US being the regional hegemony, had to do something to ensure that its presence is felt in Mexico. Since the country was inclined to communism, the US feared that this would prevent the realization of its national interests. Mexico was experiencing economic challenges and the only close partner to provide the much-needed funds was the United States.

Mexico is the third trade partner to the US after Canada and China, meaning that it had to do everything to ensure that the economy provided enabling the environment for its industries. In 1994, for instance, Mexico entered into a pact with the US and Canada commonly referred to as the North American Free Trade Agreement, which would see the three countries exchanging goods and services easily.

In the 1930s to 1940s, the US established a good neighbor policy to guide its relationships with Mexico, whereby conflicts would be resolved peacefully instead of intervening militarily. This helped in convincing Mexico that the US was committed to doing business and coexisting peacefully.

From the early 1980s onwards, the US was concerned with the leadership of Mexico since it was undemocratic, and this was unhealthy to trade. Several policies were drafted to ensure that the leadership of Mexico adopted democratic principles, especially in business.

Import substitution industrialization

Import substitution industrialization (ISI) is a trade policy that supports the development of domestic industries at a national level with the aim of manufacturing products capable of replacing imports. The trade policy operates on the premise that countries that depend largely on imports place their governments at risk of over-dependency on necessities and create a subsequent vulnerability in their economies.

Examples of such vulnerabilities include excessive expenditure during periods when import countries experience food shortages, risks of starvation for the population, and lack of enough machines for infrastructural development among others (Bruton, 1998). ISI provides a solution for most of these problems by advocating for government policies that support the development of local manufacturing industries and the reduction of importation as the primary means of achieving economic growth.

German-American economist Friedrich List is among some of the most famous economists that advocated for the ISI principle between the eighteenth and twentieth century, especially about developing Latin American nations at the time including Mexico. According to Friedrich, different countries experienced different paces of development, especially during and after the Second World War period due to the unique circumstances in which the states found themselves (Bruton, 1998).

For instance, some European nations had vast natural resources at their disposal in addition to the availability of a substantial labor force, thus easing the reconstruction process of the economy. In contrast, countries such as Mexico had a substantial labor force, but they relied heavily on importation of goods such as food and infrastructural materials to cater to their bulging populations.

Although the free-market policy existent in such countries transformed the nations into ready markets for those with considerable success in development after the World War 2 and afforded populations with goods, the expenses that thee countries incurred were high, recurrent, and erratic. Friedrich developed the ‘infant industry’ argument in which he contended that developing countries should concentrate on supporting industries in their early stages of development as a strategy to achieve self-sufficiency (Bruton, 1998).

One of the strategies that states utilize in such achievements is the nationalization of industries. This strategic plan essentially involves the acquisition of industries by the state through majority shareholding, thus awarding the government control in such industries through either vote on corporate policy decisions or the direct running of the company’s operations by government representatives.

The government becomes the majority shareholder through the acquisition of private companies, as well as nationalization whereby private companies are urged to surrender their shares to the government. The concerned ministries are charged with the role of ensuring that other stakeholders are compensated equitably to prevent any conflicts. The main advantage of this method is that it allows the government to control the pricing of products from such a company to create desirable demand to the advantage of consumers.

The second strategic method in which governments exercise control over their economies through the ISI is subsidization of vital industries. Subsidies involve the reduction of acquisition of raw materials for specific products to reduce production costs for the industries. Subsidies operate on the premise that low production costs make products available to consumers, thus increasing demand.

An increase in demand for goods translates into an increase in consumer spending and subsequently tax revenue available to the government for development of social amenities. Subsidies apply to state corporations as well as private companies (Hoshino, 2001). Some of the most prominent industries that benefit from subsidizations include agriculture, power generation, oil distribution, and water supply, among others.

Another strategy that some states apply in the actualization of the ISI is the implementation of protectionist policies that encourage economic patriotism. Protectionism is an economic principle that encourages the restriction of importation of goods and services through government policies such as the imposition of tariffs and setting high standards in quality of goods and services.

Although economists argue that protectionist policies “often equal the playing ground between goods and services produced locally and imports” (Ross, 1993, p.46), the strategic application of protectionist policies can utterly hinder the importation of goods, thus resulting in reliance of locally manufactured products.

In the case of Mexico, the protectionist policies that the government had enacted in the 1960s took the form of licensing criteria whereby the government only issued licenses for specific products depending on their availability within the country.

The Mexican government also established domestic content requirements (DCRs) in 1962 for the automobile industry in a bid to increase innovation, promote the use of local material in the industry, and ultimately grow the economy. Ros (1993) holds that apart from the Maquiladora program that fostered a free trade regime in the northern border region for export processing plants, the Mexican government put no effort in creating export policies.

The ISI strategies that the Mexican government implemented between the 1950s and 1960s, including the ones mentioned above, fostered positive economic growth and development, which reduced the country’s dependence on international aid coupled with promoting adaptability of the population to circumstances where supply did not meet the demand during certain periods.

The first forty years of PRI rule was referred to as the Mexican miracle since the country experienced unexpected economic growth due to the formulation and implementation of the substitution imports and the ensuing low inflation rates. The steps taken by the Soviet Union played a role in boosting the economic chances of the country since then there were tremendous developments in infrastructure. After the economic problems of the 1960s, the GDP of the country developed six times even though the population only doubled.

Additionally, the local currency was able to counter the strength of the dollar, which allowed local investors to engage in favorable trade globally. However, the implementation of the ISI strategy also featured certain limitations to the Mexican economy (Monero-Brid, Santamaria, & Valdivia, 2005).

Although the benefits of developing infant industries are numerous, overly enthusiastic ISI policies have the effect of crippling the economy by limiting the market opportunities that other countries enjoy through the practice of free international trade. This means that ISI policies never consider the comparative advantage principle, something that has the danger of denying the country the chance to benefit from international trade rules, such as low tariffs and preferential treatment.

Factors that made industrialization possible in Mexico

One of the major factors that made the inception and actualization of the ISI possible in Mexico is the availability of a sufficient cheap labor force. Due to the land policies existent during President Porfirio Diaz’s reign, a majority of the population in the rural areas in Mexico did not own land, and thus they relied on other means of income for survival.

The country’s mines and plantations were barely enough, which resulted in a huge surplus in the labor force (Hoshino, 2001). The abrupt end of the immigration exceptions that the Mexican laborers enjoyed in the United States further strengthened the resolve of the largely unemployed population to work in the new industries after their establishment.

Secondly, the country had a sufficient endowment of natural resources. The northern border region of the country had copper mines that provided job opportunities, thus mitigating the unemployment problem that the country experienced at the time. Women and children mostly chose jobs that were not as physically demanding as the mines, such as working on wheat plantations.

Although the wages in such employment lines were meager, they provided for most households in the rural areas that could not afford land rates with a means of earning enough money for basic needs. The discovery of oil in the 1970s improved the level of employment in addition to providing export products such as petroleum that earned sufficient government revenue (Ros, 1993).

The leadership of Cardenas focused so much on the exploration of oil, which played a role in the growth of the economy. He established nationalistic policies that forced all private companies to abandon oil-manufacturing projects. By 1921, it is noted that Mexico was one of the world’s greatest oil producer. After unsuccessful negotiations with the Royal Dutch, Shell company and the Standard Oil of New Jersey, he was forced to declare all oil deposits the national sites, and further exploration was stopped.

He ordered all foreign companies to quit the country, an act that inspired the locals to contribute to compensate the companies. Unfortunately, the international community was not happy with the president’s act, and the country was isolated for several years, yet it lacked the much-need technology to carry out the exploration process. This delayed the industrialization process even though it was initially thought that it would facilitate economic development.

Foreign investments in the form of imports had a great impact on the actualization of industrialization in the country. Just like businesses, governments rely heavily on investments from other nations to ensure that they run essential projects simultaneously, especially when prioritization of such projects is not an option.

For instance, in a scenario where a government has to supply additional food to its population and provide power supply to newly inhabited areas, it is difficult to pick one and neglect the other, thus creating the need to attract additional funding to tax revenue in the form of foreign investments.

Another factor that played a significant role in the success of Mexico’s industrialization process is political stability in the country. Political stability forms one of the main requirements for the creation of a healthy economy. Lack of political stability often leads to the destruction of essential resources such as infrastructure, prevents investment opportunities, and hinders amicable relations with other nations willing to engage in trade or to offer political council.

For instance, in the Latin American circle of nations, relations between Cuba and the United States were often shaky during the Mexican industrialization period leading to strenuous relations between Mexico and the US. However, the presence of political stability in the country coupled with natural resources such as copper and relaxed policies on immigration provided the American government with an incentive to engage in trade relations with Mexico through capital investments.

Lastly, the existence of an international market for Mexico’s primary consumer products generated support from the government regarding infant markets. Although the internal market for Mexico was mostly under the control of the state, the rules outside the territorial borders were different. International trade relies mostly on the market forces of supply and demand to establish successful trade relations. In most cases, countries whose products attract more demand than others do achieve more success in international trade.

For instance, one of the commodities with the most demand worldwide is oil, thus making oil-producing countries some of the most successful countries in international trade. Demand for oil hardly ever falls, even during periods when oil prices are high. In the same light, much of Mexico’s consumer goods at the time attracted high demand in the international market, thus drawing profits for the infant industries and funds for further expansion.

At some point, the demand for oil and copper surpassed that of consumer products such as grain, thus resulting in little government focus on the consumer industry and a subsequent public outcry over the government’s neglect on labor policies. The lack of an adequate international market for products made in the country would have resulted in a stagnation of the import substitution process due to saturation of products in the internal market, as was the case later on between 1987 and the early 1990s.

One of the main advantages of the ISI is that nation that adopts the strategy reduce their dependence on other nations, thus reducing the number of instances in which the economies of such countries experience vulnerability. Just as is the case with business relationships amongst companies, unforeseen circumstances may sometimes occur, thus hindering the reliability of one party about the execution of a certain requirement of an agreement with another party (Bruton, 1998).

For instance, in a case where one party relies on another for the supply of agricultural products and the supplying country experiences a sudden storm destroying the products, the buyer, in this case, would be vulnerable to starvation assuming the lack of an alternative solution. However, assuming that the buying country has its supply of agricultural produce and it buys the produce from the other country as a precautionary measure during periods of internal shortage of the products, such vulnerability would be non-existent.

The ISI encourages the internal generation of products that a country would otherwise need to rely on another to achieve access, thus reducing instances of vulnerability. Secondly, the successful execution of the ISI policies results in the predictability of the economy (Lewis, 2004). For instance, in the case of Mexico, the ISI was the government’s way of controlling the economy and ensuring that the country’s population has enough essential consumer products without resorting to expensive expenditure by government institutions.

The Mexican government during President Diaz’s rule was in a position to control the internal market forces and subsequently the economy through the support of infant industries that dealt with the manufacturer of consumer products. The government’s control over most industries in the country also allowed relevant institutions to identify problems as soon as they developed and formulate solutions before the problems developed to the magnitude that the government could not control internally.

Thirdly, import substitution fosters innovation in a country and allows it the opportunity to compete with other countries with significantly higher levels of development. Most developing countries lag economically as they focus on solving internal problems that their populations face while competing with developed countries in various areas of the economy.

Globalization has added to the pressure for such countries to keep up with blurring paces at which developments such as technological gadgets replace most tasks that people are used to handling manually. The ISI provides some solutions to this dilemma by allowing developing countries to develop innovations that cater to internal needs before advancing to join the global race towards technological excellence (Monero-Bridet al., 2005).

In Mexico, the institution of the ISI policies allowed the country to develop industries that addressed issues of food production and provision of employment for its large labor force. Although the nation delved too long on the concept, the pace at which it undertook the development of innovations allowed it the chance to adapt progressively to rules of free trade without having to deal with the provision of basic consumer goods to its population.

Another advantage resultant of the adoption of the ISI is the ability of the strategy to increase the bargaining power of a country in international trade. Although most countries that choose to apply the ISI limit their international trade activities, as was the case with Mexico, these countries still rely on the sale of products and services that they develop through the support of infant industries to generate substantial revenue to grow their economies (Perereault& Martin, 2005).

In most business transactions, a party that has a lot to lose when an agreement fails to materialize is likely to make bad judgments due to possession of lower bargaining power. However, parties that negotiate from points of strength are more likely to reach a compromise that benefits both sides. The ISI increases the bargaining power that a country has in the negotiation of international trade dealings due to the manageable resolution strategies that the ISI provides for internal problems regarding necessities such as food and energy supply.

The ISI also increases the taxable revenue that industries in a country generate, thus resulting in more government income (Haber, 1995). Governments rely majorly on tax income to satisfy the needs of their populations in terms of provision of basic social needs and amenities. Although internal industries generate a significant amount of a country’s earnings, additional income is often available through the encouragement of importation and taxes that subsequently accrue.

In most cases, governments charge higher rates for imports by foreign countries than they do for local industries. The additional income often creates an incentive for governments to encourage the importation of goods and services. The most common exception to this rule exists when the imports are basic consumer products in which governments usually encourage importation as a means of lowering local prices for the benefit of the citizenry.

By looking at taxation from this perspective, it is clear that fostering local industries will generate more taxes for the government than allowing foreign competitors into the local market. Higher taxes for foreign industries translate into fewer imports due to the high prices of the products when they finally reach the consumers. Fewer imports translate into lower tax revenue for the government, thus making the ISI the better option due to the creation of a stable flow in tax revenue.

Lastly, the ISI promotes economic patriotism, which fosters the growth of the local market even after the liberalization of the internal market in the later stages of a country’s economic progress. Economic patriotism entails the coordinated behavior of companies in which particular groups of consumers or companies prefer goods and services produced in their own countries or in regions within which their countries participate in trade, as opposed to goods and services from foreign nations.

The ISI generates familiarity of local products and consumer trends that foster confidence in local products to the benefit of local manufacturers about international trade.

The predictability of the quality of products, potential job opportunities, and the possibility of discounted pricing that accrue from the practice, in addition to tax revenue for the government due to increased consumer spending make the concept attractive to local governments. Most consumers are less adventurous with basic consumer goods than they are with luxury items, thus establishing confidence in a country’s participation in free trade, as in international trade.

Disadvantages of the ISI

One of the main disadvantages of the ISI is the creation of monopolies. Although monopolies generate adequate income for industry owners, they stifle competition and prevent consumers from enjoying benefits that accrue from the healthy business competition.

With time, monopolies breed laxity in the quality of products available for consumers. Additionally, monopolies enjoy tyranny in pricing that places consumers at a disadvantage. Ultimately, the consumers’ demand for such goods may drop, thus defeating the purpose of the ISI policy implementations.

Secondly, the ISI regulations often result in economic stagnation as the case study of Mexico proves. Although the reception of new industries creates a sense of promise for income generation from the industry owners’ point of view, with time, the products saturate the internal market to the point where they fall in price to the detriment of the state concerning tax revenue. Therefore, at such point, unless the markets open up to policies of free trade, the stagnation and eventual deterioration of industries negate the core purpose of the establishment of the ISI policies.

The third disadvantage of the ISI policy implementation concerns the availability of ready markets for the compliant nations. In trade, the concept of reciprocity often applies to parties conducting dealings in terms of what they expect from each other in the form of good faith. In long-term trade relations, parties are often willing to create compromises during certain instances for the benefit of future dealings.

In the case of import substitution, especially when the regulations are as strict as Mexico used to be, one party supplies consumer as well as capital goods while the other can only supply capital goods.

Such instances are often good for short-term trade relationships, but they do not work well with long-term dealings for once the other party gets a trade collaborate with a better offer of better conditions, the trade dealings collapse. Therefore, it is often difficult for ISI compliant countries to find long-term ready markets for their products. With time, the task becomes harder as other countries open to free trade join the market.

References

Bruton, J. (1998). A Reconsideration of Import Substitution. Journal of Economic Literature, 36(2), 903-936

Haber, S. (1995). Industry and Underdevelopment:The industrialization of Mexico, 1890-1940. Stanford, UK: Stanford University Press.

Hoshino T. (2001). Industrialization and Private Enterprises in Mexico. Chiba, Japan: Institute of Developing Economies.

Lewis, C. (2004). Institutions and Investment: The political basis of industrialization in Mexico before 1911. Hispanic American Historical Review, 84(2), 353-354.

Monero-Brid, J., Santamaria,J., & Valdivia, R. (2005). Industrialization and Economic Growth in Mexico After NAFTA: The Road Travelled. Development and Change 36(6), 1095-1119.

Perereault, T., & Martin, P. (2005). Geographies of Neoliberalism in Latin America. Environment and Planning A,37(2), 191-201.

Ros, J. (1993). Mexico’s Trade and Industrialization experience since 1960: A Reconsideration of Past Policies and Assessment of Current Reforms. Notre Dame, IN: Kellogg Institute for International Studies.

US Library of Congress: Mexico-Growth and Structure of the Economy. (2014).Retrieved from www.countrystudies.us/mexico/65.htm

Footnotes

1 “A trade or economic policy theory that advocates replacing imports with domestic production.”

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