Hi5003 Economics For Business And Assessment Answers

Discuss the topic from your secondary research with some theory

Answer:

Introduction:

Economic growth is the most important goal that any nation always tries to achieve. According to biblical statement, economic growth is the increase in any nation’s productive capacity from over a period of time. It is a continuous process whereby the increase in the volume of goods and service as measured by its monetary value within a particular year is being accessed. This project tries to find out the economic growth of Mexico in the last 5 years. The positive growth if at all found does not suffice to the fact that it would be a boon for the nation. The main aim of this project is to analyze the influence of economic growth on the contemporary society of Mexico.

This project has initially taken up the macro-economic indicators like GDP, unemployment rate and rate of inflation in connoting the growth performance of Mexico. The project begins with a brief about Mexico as a nation and then a synopsis about the nation’s economic condition before 2012. In the next part, the chosen three indicators are used to understand if at all Mexico is moving in the path of growth. The next yet one of the most important stages in this project are to evaluate the impact of this growth on contemporary society. Through this evaluation it can be understood if at all growth is being beneficial for the nation or is coming back as a curse to the nation. All the data used in this project have been adopted from trading economics after tallying them with the data provided by the World Bank. However for evaluation of contemporary society, media reports have been considered. A conclusion has been drawn thereafter to moderate the findings from our research based on secondary data sources. 

Mexican Economy:

Background:

Mexico is bounded by Pacific Ocean in the south and west and by the Caribbean Sea in the east. The nation won its independence in 1821 but lost their northern portion to the US. The country has tropical rain forest and experiences pleasant climate throughout the year. Around 80% people belong from mixed European community and more than 90% of them are Roman Catholics. Earlier data suggests that more than half of the population belongs of Mexico were poorly housed living in small settlements and shanty towns. The country is rich in their cultural heritage which has been developed from an amalgamation of Ameridian and Spanish culture (Alvarez and Martinez 2016). In the early days after independence the nation had to face serious troubles in the form of poverty, inadequate health facility and addiction to alcohols and drugs. At present, the Mexican nation follows Federal Republican government system and operates under free market. It has also been a part of NAFTA, TPP and APEC for maintaining the trade balance both within and outside the country. According to study it has been found that Mexico was ranked at 15 in terms of its GDP during the year 2016. More than 122 million people dwelling in this nation (Rose-Ackerman and Palifka 2016). Now the country’s GDP ranking and other macro-economic indicator highlights the fact that the economy has been able to pick up the pace in growth.

Economic Concepts used:

This report has been talking about growth of Mexican economy. In economics, growth has always been used as a narrow concept. Biblically economic growth is the increase in the total value of goods and services of the particular nation as compared with the data based on same indicators taken from previous years. The increase in this value can be the result of either more production or rise in the price of goods and services. Even improvement in the quality of resources and technology used can lead to this growth (Kuznet 2016). It is measured using GDP of the nation which contains 4 components namely government expenditure (G), consumption (C), investment (I) and net export (NX).

However the true betterment of the economy can never be evaluated by using the growth indicator. The concept of development has been introduced by economists Todaro and Harris. According to them every individual should have enough freedom of choice along with strongly developed self esteem and should be able to maintain a proper living standard. In other words, the concept of development is a better way through which the well-being of any nation is measured (Cuaresma 2016). According to UNDP, the development of any nation is measured by the proposed Human Development Index. Through this measurement the cumulative effects of knowledge, longevity and decent standard of living on the well-being of the society is measured.

Other economic concepts like unemployment and inflation rate has also been used in this paper. Unemployment and inflation are two plagues that can destroy any economy or bind them into a never ending vicious circle. Unemployment has always been defined as a situation where people who are capable of working and trying hard to find a suitable job do not get one. On other hand, inflation is the continuous upsurge in the price of goods and services within the economy. It makes people worse off as they faces a dearth in their capacity of purchasing their required commodities. There is an innate relationship between these two indicators amongst themselves and with the GDP of the nation. According to the well-known Okun’s Law it can be stated that for each unit increase in unemployment, the real GDP of a nation falls by 2 points (Cuaresma 2016). In other word inverse relation exists between GDP and unemployment. On other hand, the Phillips curve teaches us relation between the unemployment level and inflation rate of the economy. According to it, if unemployment is to be controlled then the nation must be prepared to deal with inflation and vice-versa (Fischer 2016). Henceforth, in this report these three components would be studied in determining Mexico’s economic condition.

Economy before 2012:

The economy of Mexico was thwarted from rising post recession. The sub-prime mortgage crisis and great recession of 2008 and 2009 slashed the economic balance of Mexico and prevented it from standing up. In views of economists, in the year 2009, Mexico faced the greatest downfall in their economy with a sharp decrease of around 6.5% GDP. The global recession should not be the only factor to be blamed for this crisis in Mexican economy. It was backed up by the inconsistencies existing within the economy in terms of their political scenario. The nation became an adjunct of U.S. economy. The then President of Mexico, Mr. Felipe Calderon was busy shedding of the blame for this economic collapse by stating that it was the impact of external factors that took the economy where it stands. According to Calderon, Mexico had the team of best economic advisers and can never make flaws. But it has been observed that when U.S. the place of origin of crises suffered a dampening of 2.4% GDP, Mexico faced around 6.5% fall.

The economy of Mexico was opened free for international trade. It used to be the largest exporter to U.S. Even when the U.S. nation was experiencing the wealth effect, Mexico was unable to reap the benefit. The upsurge in the remittance of the migrants is the only way through which the remittance increased in Mexico to a very little quantity. But no sooner than the U.S. faced the crisis, Mexico had a huge loss of around 21% in their export during 2009. In spite of the fact that this economy had the worst impact of recession, the federal government took drastic steps like raising the interest rate and increasing the IVA from 15% to 16%. Through such drastic steps, the government of Mexico claimed to have revived the nation within 2010, though in reality the extent of recovery pertains to its export sector only. However the true reflection of the economy in the last 5 years (2012-2017) would be observable by considering statistical figures as shown in the next segment of this report.

Economy in recent time (2012-2017):

Three graphs have been presented in this section to show the economic performance of the nation. The first graph shows the growth rate of GDP of Mexico during the time period 2012-2017. The second and the third graph show the inflation rate and unemployment rate respectively.

In this graph it is clearly seen that the growth rate of GDP during the chosen time-period has always been positive. However 2012 marked the highest growth rate of nearly 5% whereas there has been a sharp decline in the next year. Again the growth rate started increasing and as of 2017, Mexico is facing a positive growth rate of nearly 3%. Growth rate of 3% is indeed a good sign for Mexican economy, especially after it has faced such a negative impact of the U.S. global crisis during 2009 (www.data.worldbank.org 2017).

The inflation rate highlights an interesting pattern whereby it is seen that it fluctuates several times between each consecutive two years. After 2014, the inflation rate showed a down-turn but again after 2016 the rate of inflation in the Mexican Economy suddenly shoots up to as high as 6%. Usually the GDP growth and inflation moves in same direction and hence a high inflation can also be said to flash the economic growth. But in this case, the GDP growth rate for 2016-2017 was comparatively lower and inflation rate quite high (www.data.worldbank.org 2017). This is an alarming situation as the people is going to face a worse situation with reduced purchasing capacity and thereby creating a dearth in the aggregate demand. Lack of demand is expected to dampen the productive cycle of the economy and thereby pulling the economy towards poverty. 

It anomaly whereby unemployment within the Mexican economy is seen to be quite high. On an average the unemployment rate of the chosen period was 4.5 to 5%. After 2016 this rate dampened but still the rate seems to be nearly 3.5% which is quite high for the economy (www.data.worldbank.org 2017). The ideal situation for any economy is to maintain the level of unemployment within or below 2-2.5%. This limit is called natural level of unemployment which is healthier for any economy’s growth. However, though unemployment is high, the GDP growth rate is comparatively low. Here it is seen that Okun’s Law is being violated (Cuaresma 2016). Henceforth, the actual reason for such a dramatic situation is discussed below.

Study shows that the Mexican economy performs well in terms of trade. Almost 73% of the total GDP’s share consists of trade in goods and services. The oil company owned by the state has started accepting foreign investment and improving their existing condition. Huge inflow of foreign investment might be the cause for the increase in inflation rate within the economy. Foreign investment spreads itself even in the well organized banking sector (Vanham 2015). The government though have opened up the market but still continues to implement strict labour laws through which small scale labours are protected of their rights. The government also took the initiative to control the price of pharmaceutical drugs. There has been dramatic structural reform within the economy followed by prudent monetary and fiscal policy have led the economy to where it stands today. The Mexican economy has been diverging their resources in improving the telecommunication sectors as well. In spite of all these factors the crux lies as to where the nation has really been able to grow. The main concern is if the growth of the economy has been beneficial or has come up with other serious issues (Donelson and Esparza 2016). This is going to be seen in the next part of this writing.

Impact of growth on the contemporary society:

Growth has been the primary concern for the government of Mexico till date and as a result factors like healthy lifestyle, education and other factors are missed out. The economy is plagued with crime and violence. According to an article in Business Insider by Christopher Woody (2016), highlights the fact that many hundreds of people are disappearing or killed due to drug wars. In the year 2015-16 around 7.6% homicide rates increased. According to this article it is stated that the complex economic activities cannot take place as a result of this violence. According to Tom Wainwright (2017), reporter of The Economist, it is the medium and small scale industries that suffer and as a result the poor suffers the most due to increased crime rate. Again another article shows that oil industry is the mostly affected sector as a result of theft. Report published in Texas Monthly highlights that Rex Tillerson, the Secretary of the state has declared that U.S. should take active measure in reducing the demand for drugs in Mexico (Reigstad 2017). According to him, the problem of Mexico’s drug addiction and war should be blamed on to U.S. for not being able to control the same. It has been observed that whenever youths have money in their hands they get engaged into addiction. In addition, those who do not have sufficient money takes the wrong way of theft, burglary and other sorts of crime to gain the same (www.nogalesinternational.com 2017).

The economy which has this widespread problem of drug addiction amongst the youths and young adults can never be claimed to be a developed economy. Mexico has surely moved in the path of growth but it is yet far behind to achieve development. According to report published by Dan Vergano (2017), Mexico has started dealing with a highly fatal drug named Fentanyl is much cheaper than heroin but said to be far more powerful than it in terms of actions. It is said that popularisation of this drug can take the life of a huge number of people in the country. Most of these drugs are being supplied from Mexico. Research suggests that more than 80% of heroin consumed in U.S. is being supplied by 6 cartels in Mexico. This clearly indicates that the growth in the economy has turned out at the cost of thousands of lives and moral degradation (AFP 2017). According to InSight Crime’s report written by Victoria Dittmar the parallel business of fuel theft in Mexico deals with more than $1 billion (Dittmar 2017). The oil company Pemex has seen a heavy loss due to theft. The public officials, individual workers and even the private companies are engaged in this forgery and this clearly once again proves that Mexico is not moving in the path of development. Rather the growth of the economy has been badly affecting or taken place as a resultant of illegal activities (www.thejournal.ie 2017). The contemporary Mexican society is seen as a society with degrading moral value, lack of ethics and a chaotic scenario which needs to be immediately taken control off. Improvement in GDP with low level of inflation and unemployment is surely not enough to uplift the economy.

Conclusion:

The entire writing has concentrated on the concept og growth in context of Mexican economy in the last 5 years. However, the primary concern should always be on the development of the nation. This is because whenever a country aims to bring in development growth is automatically achieved by that nation. Recently the government of Mexico have focused in achieving development and henceforth making several changes through structural reforms. It has been observed that due to these structural reforms especially in the trading sector, the economy has been able to fight back the great depression and soon rise up. It has also been observed that Mexico had diversified their investment in telecommunication system. However in the end it is also seen that amidst all these positive steps the government failed to curb the existing corruption within the economy. Drug addiction has been a grave problem since independence of Mexico in 1982 and it persists till now within the economy. As there has been a decline in the pace of growth it has led to an increase in the crime rate of Mexico. It is advisable that if the government can bring into some policies and changes within the economy through which the poorer section is benefitted more than the stronger section of the society then it might help in reduction of crime rate. On other hand, strong punishment for the people who have been involved in any offensive activity followed by heavy monetary penalisation might be helpful. In addition, the government should encourage the families into sending their children to attain the minimum basic education. Taking up awareness programmes through street plays, distribution of pamphlets and even using social media and live street hoardings might also be helpful in dealing with the drug problems that Mexico faces at present. The country which has been able to arise from the major economic set back of 2009 is expected to flourish more if these issues can be controlled by the government. As of now it can be concluded by stating that the nation at present lies in a hay-way situation and needs strong government regulations.

References:

AFP, S. (2017). Murders, corruption and crime: The hell of Mexican prisons. [online] TheJournal.ie. Available at: https://www.thejournal.ie/mexican-prisons-3418092-Jun2017/ [Accessed 6 Jun. 2017].

Álvarez, A. and Martínez, S., 2016. 10. The Mexican economy in 2014: between crisis, free trade, social devastation and labor precarization. The Financialization Response to Economic Disequilibria: European and Latin American Experiences, p.181.

Cuaresma, J.C., 2016. Okun’s Law. The New Palgrave Dictionary of Economics, pp.1-3.

Dittmar, V. (2017). Layers of Corruption Facilitate Fuel Theft in Mexico. [online] Insightcrime.org. Available at: https://www.insightcrime.org/news-briefs/layers-of-corruption-facilitate-fuel-theft-in-mexico [Accessed 6 Jun. 2017].

Donelson, A.J. and Esparza, A.X., 2016. The Colonias Reader: Economy, Housing and Public Health in US-Mexico Border Colonias. University of Arizona Press.

Fischer, S., 2016. Reflections on Macroeconomics Then and Now. Business Economics, 51(3), pp.133-141.

Goel, R.K. and Saunoris, J.W., 2017. The nexus of white collar crimes: shadow economy, corruption and uninsured motorists. Applied Economics, 49(31), pp.3032-3044.

International, K. (2017). Factory jobs in Sonora go unfilled, but is rapid growth or poor pay to blame?. [online] Nogales International. Available at: https://www.nogalesinternational.com/news/factory-jobs-in-sonora-go-unfilled-but-is-rapid-growth/article_241f0850-4a59-11e7-a126-1bcafa23d7a9.html [Accessed 6 Jun. 2017].

Kuznets, S., 2016. Six lectures on economic growth. Routledge.

Reigstad, L. (2017). Rex Tillerson Says the U.S. is at Fault for Mexico's Drug Violence: Your Roundup. [online] Texas Monthly. Available at: https://www.texasmonthly.com/the-daily-post/rex-tillerson-says-u-s-fault-mexicos-drug-violence-roundup/ [Accessed 6 Jun. 2017].

Rose-Ackerman, S. and Palifka, B.J., 2016. Corruption and government: Causes, consequences, and reform. Cambridge university press.

Vanham, P. (2015). Top 10 things to know about the Mexican economy. [online] World Economic Forum. Available at: https://www.weforum.org/agenda/2015/05/top-10-things-to-know-about-the-mexican-economy/ [Accessed 6 Jun. 2017].

Vergano, D. (2017). This Drug Is Cheaper And More Powerful Than Heroin — And May Be Killing Way More People. [online] BuzzFeed. Available at: https://www.buzzfeed.com/danvergano/fentanyl-by-the-numbers?utm_term=.osA95E7Lp#.hsORaXgyY [Accessed 6 Jun. 2017].