(gentle music)

- [Instructor] This is Mexico.

The Mexican economy is the second largest in Latin America

and ranks amongst the top 15 worldwide by sheer size alone.

For more than four decades

it's been considered a leading emerging market

a future economy to watch.

Yet at the same time Mexico appears to be stuck

in the dreaded middle income trap.

Growth between 1990 and 2019, average 2.4% per year

half the standard emerging market rate.

Raising the question, why, why has Mexico failed

to jump from middle to high-income?

Why did Mexico's economy contract more than most in 2020,

what does it have going for it,

and how can it overcome its economic challenges?

To answer all of this,

we first need to start with its history.

How did Mexico's history shape if it's economy?

A good place to start is the post-war period.

Whilst many countries during this time

follow the policy of import substitution.

Few did it with such zeal

and far-reaching effect as Mexico debt.

Import substitution or Mexicanization

would come to be the cornerstone

of the nation's economic development.

In short, the plan was to facilitate

domestic industrialization creating a stable economy

with the help of a fixed pay so to dollar exchange rate,

and for awhile this simple but effective strategy

actually worked.

Mexico's economic growth ran wild

averaging 6.5% a year between 1950 and 1973.

In fact, no other country in Latin America, besides Brazil

which also followed an import substitution regime

experienced higher rates of growth.

Yet there was a fundamental flow in this strategy,

namely, the way this growth was being generated