The debt crisis and its aftermath

The import-substituting industrialization model came to an abrupt end with the Mexican debt crisis of 1982. Subsequent macroeconomic policies, implemented at the behest of the International Monetary Fund and foreign banks as a condition for loan rescheduling, attempted to restrain public spending, liberalize the economy, and attract foreign investment. The initial result of these policies was severe recession. However, since 1986 real GDP growth has revived, reaching 1.4 per cent in 1987, 3.1 per cent in 1989, and 2.6 per cent in 1991.1

Table 8.3 Growth in manufacturing, commercial, and service sectors, 1985-88

Sources: Derived from Rowland, 1992, and INEGI, 1989.

Domestic and foreign investment flows responded to the liberalization measures - in some cases in anticipation of the implementation of the North American Free Trade Agreement (NAFTA). Direct foreign investment of only US$491 million in 1985 had increased to $4,762 million by 1991; as a proportion of GNP this represents a rise from 0.3 per cent to 1.7 per cent.

The new export-oriented economic model, combined with the effects of structural adjustment, has had striking effects on the distribution of manufacturing, commercial, and service employment nationwide. The most significant changes are the decline in Mexico City and the growth of the northern border region. Between 1985 and 1988, employment in the border states grew at almost three times the national average, while the net number of jobs in Mexico City fell (table 8.3). Export-oriented production favoured cities with ports, those along the northern border, and those in areas with natural resources (Gordon et al., 1993; Pradilla, 1990; Rowland, 1992). Most such cities are outside the previously favoured region of central Mexico.

Entry into NAFTA is likely to continue this trend and bring benefits for particular industrial sectors. In the context of an overall rise in employment, the "winners" are generally predicted to be apparel, footwear, pottery, leather, furniture, services, construction materials, beverages, plastics, and rubber. The "losers" are expected to be chemicals, machinery, paper, non-ferrous metals, and tobacco (Gordon et al., 1993).

Mexico City may well continue to lose out relative to other areas if these forecasts are correct. Gordon et al. (1993) suggest that supplier links with growing areas and sectors of the economy are weak for those establishments located in the capital. Therefore the impact of the country's economic liberalization will depend primarily on the extent to which the city remains a national centre for finance and capital.

The other, less quantifiable, national trend affecting economic growth in Mexico City lies in the country's political structure. Traditionally highly centralized and tightly controlled by the dominant political party, the Institutional Revolutionary Party (PRI), the political system has in recent years become more open to opposition parties and more responsive to local conditions. If this trend continues, the need for large companies to put their headquarters in Mexico City may diminish. The vast labour force employed in the government bureaucracy may also be reduced or even dispersed to other parts of the country.

In the past, agglomeration economies, local market size and wealth, and direct contact with the national government played important roles in the spatial structure of the Mexican urban system. However, in the 1980s, as export markets became more significant, production processes worldwide changed, and transportation and communication facilities in Mexico improved, traditional location factors lessened in importance for many firms. At the same time, congestion costs in Mexico City increased and evidence of polarization reversal began to appear (Gilbert, 1993b: 731; Portes, 1990; Richardson, 1989). One outcome was the gradual emergence of a polycentric spatial structure in central Mexico: an antidote to both the exhaustion of agglomeration economies and crippling congestion.