Mexico Economic Problems: Post Revolution

Following the end of the revolution in 1917, Mexico embarked on a period of economic reconstruction. Mexico finally saw economic growth after the revolution in 1930, from then on to 1970, which was spurred by import-substitution industrialization that promoted the development of national industry. Economic historians refer this period as the Mexican Miracle. Import-substitution industrialization (ISI) allowed for economic development that spurred rapid industry expansion. The growth of this period occurred with changes in the economic structure of the country. These changes included free land distribution to peasants under the concept of ejido, the nationalization of the oil and railroad companies, the introduction of social rights into the constitution, the birth of large and influential labor unions, and the upgrading of infrastructure. During this period the population doubled and the GDP increased six-fold. By the 1960s, the ISI model had reached its peak. The over speculation by the administrations of Echeverria and Lopez Portillo caused the economy to slow and then plummet. To fund social development, the two administrations borrowed money to develop a government run oil company. At that time, oil prices were high and interest rates were low. By 1980 though, oil prices had plunged and interest rates had sky rocketed. In 1982, president Lopez Portillo, just before ending his administration, suspended payments of foreign debt, devalued the peso and nationalized the banking system, along with many other industries that were severely affected by the crisis, among them the steel industry. While import substitution had produced an era of industrialization in previous decades, by the 1980s it was evident that that protracted protection had produced an uncompetitive industrial sector with low productivity gains. The economic crisis of 1982 was exacerbated by the 106 billion dollar foreign debt. During the 1980s, five percent of the GDP went towards the payment of foreign debts.

In 1992, in an effort to liberalize trade, Mexico signed the North American Free Trade Agreement (NAFTA) between the United States and Canada. After NAFTA was signed, inflation was reduced and growth averaged 2.8