Mexico's Labyrinth of Uncertainty

What makes countries grow is perhaps the most fascinating issue in economics, and one of tremendous political-indeed, geopolitical-importance as well. In pondering this question, the case of Mexico-neither an economic tiger like China or Singapore nor a sluggard like many African and Carribean countries-may be especially instructive.

On a recent trip to Mexico I spoke to many Mexicans about the state of their economy and about their hopes for the future. I asked about their long-term expectations, and about their thoughts concerning Mexico's economic prospects in the decades ahead. What I heard suggested that the dominant feeling for most Mexicans is one of a great uncertainty about their future-perhaps the very uncertainty at the root of our imperfect knowledge about growth in general.

Mexicans seem to believe that they could be living at close to US living standards in another few decades. But they find it equally likely that their living standards might drop even lower than they are today. This mixture of optimism and fear applies to everyone, Mexican businesses and Mexican families alike.

People do have strong reasons to be optimistic. The 1994 North American Free Trade Agreement (NAFTA) between Mexico, the US, and Canada helped Mexico's economy recover quickly from the 1994-95 peso crisis. Indeed, NAFTA membership has proven to be so popular that Mexico's government has forged many other free trade agreements, including one with the EU in 2000.