Mexico has become a much more open economy over the past 20 years. And since the 1994 financial crisis, Mexican authorities have shown a commitment to macroeconomic discipline.

Given this progress, many observers are enthusiastic about the country’s prospects. Some, in fact, wonder whether Mexico is about to take off and become the world’s next economic tiger. The evidence suggests, however, that much work remains to be done before Mexico can catch up to First World nations the way countries such as Singapore and South Korea did in the last few decades.

Until the early 1980s, like most developing nations, Mexico sharply restricted foreign investment and trade in hopes of expanding domestic production capacity. But a severe financial crisis in 1982 prompted a change of tactics. Foreign investment limits were lifted in 1983 in some sectors. In 1985, Mexico announced it would join the General Agreement on Tariffs and Trade and did so the following year. Between 1985 and 1990, the country’s maximum tariff fell from 100 percent to 20 percent. Most sectors were opened to foreign investment in 1989, paving the way for a successful wave of privatizations. By 1994, 80 percent of state-owned firms had been privatized. The icing on the cake came in the early 1990s with the implementation of NAFTA, which secured Mexico ’s access to North American markets.

Foreign investment and trade

This open policy has paid off. Among developing nations today, only China and Brazil receive more foreign investment. In the past 20 years, foreign investment—most of it from the United States —has exploded.

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