Mexico has a long history and was home to several advanced civilizations. It gained independence from Spain in 1821 and established a democratic government. Mexico has a population of over 123 million people, with the majority being Mestizo with Spanish and indigenous ancestry. The economy has grown in recent decades and a middle class has emerged, though poverty and inequality remain issues. Consumer spending is rising, especially online, and demand is growing for healthier food options. The government aims to reduce debt and the budget deficit through fiscal reforms. Mexico has the second largest economy in Latin America and is a member of NAFTA, with most exports going to the United States.
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Mexico is a country rich in tradition and culture, so in this paper we will discuss its more
in depth in its economy, and how it developed into what it is today. We’ll first start out by
giving some general information about the country including its people, government, as well as
its economy.
Mexico’ Independence
Mexico is the site of several advanced civilizations, which include the Olmec, Toltec,
Teotihuacan, Zapotec, Maya, and Aztec (CIA, 2016).
The Spanish conquered and colonized the Mexicans
throughout the 16th century, in which it was
administered as the Viceroyalty of New Spain for three
centuries (History of Mexico, 2016). It didn’t achieve
its independence from Spain till the around the early
nineteenth century in the year 1821. It’s independence
from Spain was during an eleven year after the
outbreak of the Mexican War of Independence, in
which the Spanish Viceroy Juan de O’Donojou signed the Treaty of Cordoba, to ensure that
Mexico is an independent constitutional monarchy (Spanish accepts Mexican Independence,
2016).
Population and Indigenous People
According to the Central Intelligence Agency, as of July 2016 Mexico’s population is
estimated to total around 123, 166,749 people. The percentage of ethnic groups surrounding
Mexico’s population 62 percent are Mestizo (Amerindian-Spanish), 21 percent predominantly
Amerindian, 7 percent Amerindian, and 10 percent are mostly of European descent. Aside from
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the majority of Mexico’s people speaking Spanish as their first language, there are also 68
indigenous languages as official national languages (Languages of Mexico,2016) The Mexican
government has gone onto install The Law of Linguistic Rights in 2002, to help preserve the
native languages. There was a time when there used to be over 130 different indigenous
languages, but with the passing of time many began to become extinct and only the remaining 68
were left to preserve (Mexico, 2016). There are over 6 million people that can speak indigenous
languages, in which 1.4 million speak Nahuatl, over three quarters of a million speak Yucatec
Maya, and half a million speak Mixtec (Mexico, 2016). Some of the major religions worshiped
in Mexico are Roman Catholic, Jehovah’s Witness, as well as Pentecostal Christianity and other
Evangelical Churches (Languages of Mexico,2016). According to the CIA Factbook, the
percentage the population of religions in Mexico are as follows, 82.7 percent make up Roman
Catholics, 1.4 percent make up Jehovah’s Witness, 1.6 percent for Pentecostal Christianity and 5
percent for other Evangelical Churches.
Consumer Lifestlyes
Now that we introduced a little brief summary of
Mexico’s population, to get a better picture of the
lifestyles of Mexico’s consumers, we’ll start by looking at
some trends. To date consumers in Mexico are growing
very confident and spending continues to grow, despite
the devaluation of the peso. This can be attributed to the increasing levels of disposable income,
low inflation rate, low unemployment, as well as the aspirations of the growing middle class,
which was 25% of the households in 2015 (Euromonitor, 2016). Their disposable income
increased by 15%, while their spending increased by 18%. So as we can see, a lot of Mexican
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consumers, especially in the middle class, had a lot of spare money left over to spend on their
liking. In a recent survey by the Boston Consulting Group’s Center for Consumer and Customer
Insight found that the growing middle class was going to continue on growing even of the
economy were to continue on growing modestly (Euromonitor, 2016). The results of their
surveys revealed the “middle class is trading up to enhance their quality of life”, in which their
responses were to spend more on education, food, and health care, to improve their living
standards. Of course not all the Mexicans live a stable middle class life, to make their ends meet.
Mexico’s government announced that in 2015, the poverty rate reached 46 percent, which
increased from the following year, with the extreme poverty rate hitting 9.5 percent
(Euromonitor, 2016).
Another trend that has become increasingly big is on their online spending, even with the
limited internet access at their disposable. According to recent survey by the Mexican Internet
Association, while only one half of Mexicans over the age of 6 use the internet, and while only
85% of users use social media, only about one-quarter buy online products (Euromonitor,2016).
The recent being is that a recent report form a website called qz.com found that aside from the
fact that the delivery services are very inefficient, many Mexican consumers found that they felt
unsafe and unsecure with their information being released to online retailers, with the fear that
criminals will steal their data (Euromonitor,2016). Despite the concerns by the consumers,
internet retailing increased by as much as 232 percent, as well as mobile internet retail sales
increasing by 1,124 percent, which in part is due to the largely increasing young tech savvy
consumers who are comfortable buy online products with their mobile phones
(Euromonitor,2016).
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One last trend to look at is the increase in their demand for healthier food options.
Throughout the decades Mexico’s obesity rate has been increasing in which as of 2015 it has
actually surpassed the U.S rate of 31.8 percent with its rate being at 32.8 percent (Planas, 2016).
This increase in the obesity rate can be due to their poor diet, with has also increased the high
growth of diabetes within the country (Euromonitor, 2016). With the awareness of the high
percentage of health issues, consumers have begun to demand for an increase for healthier food
options. Between 2010 and 2015 retail value sales of organic foods increased by 48 percent
while many products that have been reduced with fat, sugar, and salt(or the so called “better for
you foods”) have increased by 20 percent. It is projected that between 2016 and 2020 the sales
of organic foods will increase by 39 percent, while the reduced “better for you foods” will
increase by 29 percent as disposable incomes rise and as the number of middle-class consumers
continue to grow (Euromonitor, 2016).
Government (introduction)
Now that we have briefly described some aspects of Mexico’s consumers and their
lifestyles, we’ll go on to talk about some aspects of their government.
Mexico has a parliamentary democracy with an executive president. The current
president is Enrique Pena Nieto, in which he took office in 2012. The president is elected for a
single six-year term. Its parliament has two chambers, that being the Chamber of Deputies and
the Chamber of Senators (Euromonitor, 2016). The Chamber of Deputies has 500 members,
which are elected for three-year terms. 300 members are elected in single-seat constituencies
and the other 200 members are elected by proportional representation. The Chamber of Senators
has 128 members, each elected for six-year terms; in which 64 seats are elected on a first-past-
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the-post basis, 32 using the first minority principle, and the
other 32 are elected by proportional representation
(Euromonitor,2016).
Mexico’s government has spent a significant amount of
money during the recession. In 2015, their public debt totaled
an estimated $9,794 billion Mexican pesos, which was
equivalent to 54 percent of their GDP (Euromonitor, 2016).
Their public debt in real terms rose by 11.6 percent in 2015.
The government is planning on reducing their public debt to a third in the medium term. As for
their budget deficit it is modest and falling slowly; in which back in 2014 it was equal to 4.2
percent and dipped to 4.1 percent in 2015, to which officials plan to reduce their deficit to 2.5
percent by 2018 (Euromonitor, 2016). The following graph below illustrates Mexico’s Public
debt from the year 2010 to 2015:
Now, with a brief overview of Mexico’s Consumers and Government, we’ll go on to talk
about a brief insight of the development of its economy.
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Economy
The Capital of Mexico is Mexico City, which is the largest metropolitan area in the
Western hemisphere with the population of over 20 million, as well as being the largest Spanish
speaking city in the world (Mexico, 2016). In the span of just over 110 years the population
grew from 500,000 to around 21.2 million people as seen by the chart below:
Background History
About 6,000 years ago; Mexico was the original site of the cultivated agriculture
throughout the Western Hemisphere, with the domestication of maize (corn). In 1325 the Aztecs
conquered the Valley of Mexico to establish Tenochtitlan, which was Mexico’s largest city.
They were despised by their neighboring tribes, due to their practice of mass human sacrifice, in
which they also helped the Spanish defeat the Aztecs in 1521 (Rosser J. B, & Rosser,z M.V.,
2004). In that same year the most dramatic event occurred in Mexico’s history, when the
Conquest of Mexico occurred. Hernan Cortes arrived in Tenochtitlan with 300,000 people
occupying the city, in which after his victory of Mexico, he offered friendship and favors to the
tribes that either surrendered or allied with him, in which he was also brutal to those that resisted
him (Rosser, J. B & Rosser M.V, 2004). During that time Cortes went on to develop the Aztec
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tax collection and land tenure systems. Later on Mexico became part of New Spain, to which the
entire society was ruled by viceroys which were appointed by the kings of Spain (Rosser J. B, &
Rosser M.V, 2004). The Spanish controlled vast estates also known as encomiendas, where they
forced Indians to work as slaves and later as debt peons when the encomiendas transitioned to
haciendas. In 1810, after Napoleon conquered Spain, a priest by the name of Miguel Hidalgo led
a revolt for Mexico’s independence from the Spanish. This revolt was lead by the Indians
demanding more distribution of hacienda lands. Mexico finally won its independence from
Spain in 1821, in which several decades of economic stagnation ,large budget deficits, political
instability, and later in the 1830s and 1840s, it lost nearly half of its nation’s land area to the
United States wars (Rosser J. B, & Rosser M.V, 2004). Later on Mexico bagun to revitalize its
economy with the arrival of Benito Juarez in 1857. His initial rise began when he wrote the a
constitution that forced the sale of all lands owned by the Roman Catholic Church, eliminating
special privileges for military officers, and allowed the sale of village ejido lands (Rosser, J. B,
& Rosser M.V, 2004). In 1876, one of Juarez supporters, Porfirio Diaz, became president and
which he began an economic upturn with his openness to foreign trade and investment, in which
technocratic advisers known as cientificos balanced and budgeted the beginnings of
industrialization, afterwards the economy began to grow substantially, but also along with debt
peonage and general inequality and poverty. Later on in the years coming Diaz resigned in 1911,
to which Mexico experienced periodic civil war until 1920. The PRI political party ruled
Mexico until 2000, where they were victorious in the revolution, in which the constitution of
1917 was written. In 1934 Lazaro Cardenas came into power, in which he helped accelerate land
redistribution to the ejidos, emphasizing communalism, and organized a ruling party-related
peasant interest group, as well as nationalizing the oil industry in 1938, establishing the Petroleos
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Mexicanos (PEMEX). When Miguel Aleman became president in 1946, he began an industrial
growth policy, in which foreign investment was allowed and encouraged despite restrictions.
Between the 1940 to 1970 period, marked the the increased growth and reasonable
macroeconomic stability, in which Mexico saw the the Land redistribution return in 1958. After
1989 came NAFTA during Carlos Salinas de Gortari, in privatizations, and the sales of ejido
lands occurred, undoing much of Lazaro Cardenas legacy (Rosser J.B & Rosser M.V, 2004).
Government
The president of Mexico, Enrique Pena Nieto, acts as both the Chief of State and the
Head of the Government. The cabinet is elected by the president with the exceptions of the
attorney general, head of the Bank of Mexico, and the senior treasury officials which all require
consent of the Senate. The ‘Congreso de le Union’, or the bicameral National Congress, is one
of the major parts of Mexico’s legislative branch. It contains 128 seats, with 96 members elected
directly by a simple majority vote, while the other 32 are directly elected in a single, nation-wide
constituency by a proportional representation vote, and all 128 members serve 6-years terms.
The other major half of the legislative branch is the ‘Camara de Diputadas’, or the Chamber of
Deputies, which holds a whopping total of 500 seats. 300 of those members are directly elected
in single-seat constituencies by a simple majority vote, while the other 200 members are elected
in a single, nation-wide constituency by proportional representation. All of these members serve
3-year terms. The ‘Suprema Corte de Justicia de la Nacion’, which is the Supreme Court of
Justice, consists of the chief justice and 11 other justices. They are all organized into civil,
criminal, administrative, and labor panels. Each member is nominated by the president but must
pass a 2/3 vote from those present in the Senate at the time of the vote, and each member serves
for life. There is also the Electoral Tribunal of the Federal Judiciary which is organized into the
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superior court with 7 judges and the court president, followed by 5 regional courts that each have
3 judges. The superior and regional courts are nominated by the Supreme Court but must also
pass a vote with 2/3 approval from the Senate. An election for the superior court president is
held by the members of the superior court, and whoever is elected holds the office for a 4-year
term, while all of the other judges serve in staggered 9-year terms. The entire legal system is a
civil law system with strong influences from the constitution of Mexico’s northern neighbor, the
United States. The government also participates in about 60 international organizations,
including but not limited to APEC, G-20, IMF, NAFTA, OECD, the Pacific Alliance, and the
WTO. They also are observers of a few other organizations like UNASUR and the Union
Latina. As for trade policies, that is not much of a worry for Mexico as long as NAFTA is still in
effect. Since most of their exports go the United States, and NAFTA eliminates virtually all
trade and tariff barriers of exports to the US, then Mexico will be able to keep earning revenue
through these dealings (Trade Barriers in Mexico). For 2016, Freedom House rates Mexico as a
partly free country with a freedom rating of 3/7. While their internet freedom is considered
partly free, there is not much freedom of the press in Mexico (Freedom House).
Microeconomic Situation
Mexico is the 2nd largest economy and the largest exporter in Latin America. The
‘Banxico’, or the ‘Banco de Mexico’, is the central bank of Mexico. Some of its functions are to
maintain the purchasing power of the country, provide currency to the local economy, develop
the financial system, and make sure the economy is functioning properly. One such method of
doing so is by setting the levels of the ‘tasa de fondeo bancario’, which is also known as the
overnight interbank rate or the Mexican interest. The rate is set during monthly meetings by the
board of governors, and it has the current interest rate set at 5.250%. This rate effects the
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overnight interbank funding rate, which is the “rate that the Banxico pursues interbank loans
with a maturity of 1-day. (Banxico)” This goes on to further have an effect on consumer
products, most importantly loans, mortgages, and savings accounts for the people of Mexico. As
is clear from this, the Banxico is one of the institutions in Mexico that plays a major role in the
economy. The institutions alone are not the only effecting factors to the microeconomic
situation in Mexico, especially since the country underwent major structural reforms in the
2013/2014 period. The fiscal policies generated the strongest objections, which was generally
due to business not being consulted during the policy changes drafting, and raised income taxes
plus new taxes on some items created general dissatisfaction from the Mexican people. From an
article in The Economist shortly after the policies were suggested, “No wonder, then, that the
middle class is howling over a proposed tax reform unveiled on September 8th. Not only does
this seek to raise taxes on everything from salaries over 5000,000 pesos to private schools. (It’s a
dog’s life)” Due to this, the consumer confidence in Mexico plummeted, and it is reported that it
still has not recovered to levels before the reforms were put into action. At the same time, these
policy changes helped Mexico to raise a large amount of revenue, having non-oil tax revenues go
up from 8.4% in 2012 to 12.7% in 2015, although the biggest gains overall are from raised
income taxes (Mexico Data). Although these reforms made the public generally upset, they did
help the economy and in more ways than most realize. The reforms are mostly redistributive due
to their focus on income tax rather than value-added tax, and they also assisted in ending some of
the special treatment given to certain industries, which created large problem of tax avoidance in
Mexico. Lastly, “it attempts to offer something tangible in return for the sacrifice of paying: a
universal pension system and limited unemployment insurance. (It’s a dog’s life)” These
reforms also helped to create a shift in consumer attitudes. While cash is still the most
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commonly used method of payment in Mexico, consumers have increased their borrowing to
finance a wider range of purchases, and on top of that savings reached 7.5% in 2015, which is
rather high for Mexico. As for Mexico’s labor market, unfortunately their system is rather rigid
(Global Competitive Index). While there are many policies in place that help the workers in
Mexico such as gender non-discrimination when hiring, no limit to the months or years of a
fixed-term contracts, and paid annual leave for workers with tenure. At the same time, there are
many more policies in effect that hinder the country’s economy or hurt its workers. There are
restrictions on the amount of overtime that can be worked, there is no unemployment protection,
no required number of fully-paid sick days, workers can be fired over redundancy, and worst of
all not all workers must be paid the same wages for the same work (Labor Market Regulation).
While Mexico is constantly trying to improve its microeconomic situation, it does so without
much regard for the country’s own working class.
Macroeconomic Situation
The macroeconomic situation of Mexico is not in a much better situation. This is
especially true since the recent election for the next POTUS, Donald Trump, who wants to
eliminate the NAFTA treaty. This would result in a significant loss for Mexico, as the economy
itself is highly dependent upon the US, since 80% of Mexico’s exports are shipped to their
neighbors just to the north. The country is in a current trade deficit of $0.9 billion, although this
is an improvement from last year when it was at $1.5 billion (Mexico Balance of Trade). The
overall exports to the US decreased 4.4%, with the largest exports that decreased from 2015 to
2015 being manufacturing and non-automotive products at 6.1% and 6.7% respectively. On the
other hand, agricultural goods exports increased by 16.5% while mining exports increased by a
staggering 57%. While this was going on, imports also fell 5.9%. For consumer, capital, and
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intermediate goods the imports declined 9.4%, 6.9%, and 5.1% in that order. With that in mind,
the GDP of Mexico has actually been growing at a rate of 2.5%, but that is from the data in 2015
(Mexico Data). The GDP of Mexico in that same year, in US dollars, is at $1.44 trillion which
fell $0.154 trillion from 2014. The per capita GDP PPP of Mexico, which is equivalent to the
level of output, in 2015 was then $16,501.94. On the other hand, GNI per capita was at $9,710.
In comparison to the US dollar, the Mexican peso has always been a weaker currency. As of
November 25th, 2016 the amount of pesos one could purchase per dollar was 20.6475/$. When
compared to other popular currencies on this same date, the one peso is equivalent to 21.9318
Euro, 15.2835 Canadian dollars, and 0.1858 Yen. Mexico’s rate of inflation is based on its
consumer price index, and the government does its best to keep that number relatively low and
stable. The current inflation figure for the country is at 3.064% (Inflation in Mexico). To
measure the inflation, an assessment is made of how much the CPI has increased in percentage
terms over a given period when compared against the CPI of the period beforehand. Of course,
when the prices fall and inflation becomes negative it converts into deflation. According to the
Global Competitiveness Index, out of 140 countries that were ranked in terms of competitiveness
Mexico ranked at 57th, and they also had a personal ranking score of 4.3/7. What has been a
large help for Mexico’s macroeconomic environment are the improvements in efficiency of the
financial markets and business sophistication in addition to the fostering of innovation. This has
caused an efficient goods market with low levels of competition, and in a relatively large market
too. With that being said, there are still many factors that hold back Mexico’s business
environment like the deterioration of institutional environments, the rigid labor market, weak
public and private institutions, and most importantly the widespread corruption throughout the
country (Global Competitiveness Index). “In the last quarter of 2015, 58% of the Mexican
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population aged 15-74 were employed compared with 61% at the end of 2007. (Hjizen 1)” This
is mostly due to a decrease in the retirement age of the citizens in Mexico, as when the
employment results are look at for the age groups of 15-64 the results do not have as significant
of a difference. Since 2009, open unemployment has been diminishing and remains lower than
the OECD average with a difference of around 2.4%, and this coincides with a fall in youth
unemployment. “It is projected to remain at around the same low level [4.1%] in 2016 and 2017,
in contrast to the substantial rise in unemployment that has occurred in some other Latin
American countries such as Brazil. (Hjizen 1)” Although they have a low rate of unemployment,
many of the jobs that are held by Mexican citizens, around 57%, are informal work. These
informal workers have little to no job security and face many financial hardships in not having a
more serious job. With all of this taken into consideration, Mexico has a relatively stable
macroeconomic environment that they are continually trying to improve, but at the same time
that can change at any moment if president-elect Trump manages to remove the NAFTA treaty.
Conclusion
With all of this in mind, we have come to the conclusion that Mexico is a relatively stable
economy that, while it does have its problems, is growing at a positive rate. Between their recent
policy reforms in the years of 2013 and 2014, and their general plan of decreasing the trade
deficit, Mexico proves that it is actively working to better itself as a country and its people. On
the other hand, as we stated multiple times, since the recent election held in the United States
that can change. The new president-elect Donald Trump wants to destroy the Nafta treaty, which
is of great interest to the Mexican macroeconomic environment since the country is so reliant on
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the United States for its exports. While Mexico is becoming a more-developed economy as time
goes on, only time will tell what is in store for our southern neighbors.
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