1. The Challenge of Growth During Globalization Presentation by Stephen Haber Coparmex Annual Meeting Monterrey, NL September 9, 2004

2. A World Increasingly Open to Trade

3. On Average, Being Open to Trade and FDI is Good for Growth

4. But, Not Everyone Grows Faster

5. Mexico is an example: trade has increased dramatically

6. But Real Per Capita Income Growth Has Been Slow

7. The Problem: Mexico Has a Very Small Banking System

8. Why FDI is Not a Substitute for a Banking System

9. Most Firms are Small Producers of Services

10. FDI Finances No More than 12% of Mexico’s Total New Investment

11. The Productivity Impact of Differential Access to Finance

12. 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.

13. Fast Growing Globalizers have Large Banking Systems

14. 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

15. % of Directors of Colombia’s Banco de la República From Government

16. Financial Repression in Colombia

17. The Impact of Repression on the Colombian Banking System

18. A Similar Story Can be Told About Mexico in the 1970s

19. The Impact of Financial Repression in Mexico

20. Why Finance Matters for Long Run Productivity Growth

21. 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.

22. Voice and Accountability of Government is Improving

23. Rule of Law is Improving

24. Economic Changes Already Afoot Independent Central Bank. Sofoles. Afores. SHF.

25. Mexico’s Future?