The Challenge of Growth During Globalization Presentation by Stephen Haber Coparmex Annual Meeting Monterrey, NL September 9, 2004
A World Increasingly Open to Trade
On Average, Being Open to Trade and FDI is Good for Growth
But, Not Everyone Grows Faster
Mexico is an example: trade has increased dramatically
But Real Per Capita Income Growth Has Been Slow
The Problem: Mexico Has a Very Small Banking System
Why FDI is Not a Substitute for a Banking System
Most Firms are Small Producers of Services
FDI Finances No More than 12% of Mexico’s Total New Investment
The Productivity Impact of Differential Access to Finance
Manufacturing Can’t Grow if Services Don’t Grow Manufacturers consume inputs from the Service Sector—on average 25% of their inputs are non-traded services. If the service sector does not grow, and does not become more productive, manufacturing cannot grow. But services cannot grow if there is little domestic finance.
Fast Growing Globalizers have Large Banking Systems
The Importance of Political Institutions The political institutions that limit the discretion and authority of the government are a key to the development of the financial system—and hence a key to economic growth. Examples: Colombia and Mexico
% of Directors of Colombia’s Banco de la República From Government
Financial Repression in Colombia
The Impact of Repression on the Colombian Banking System
A Similar Story Can be Told About Mexico in the 1970s
The Impact of Financial Repression in Mexico
Why Finance Matters for Long Run Productivity Growth
Why Mexico is Well Positioned for the Future Mexico is solving the problem of limiting government. 1.Party competition limits authority and discretion of government. 2.Growth of state governments limits the authority of central government 3.Changes in expectations in civil society reinforces formal laws.
Voice and Accountability of Government is Improving
Rule of Law is Improving
Economic Changes Already Afoot Independent Central Bank. Sofoles. Afores. SHF.
Mexico’s Future?