WHY MEXICO DOES NOT GROW FAST ENOUGH: Domestic Saving, Industrial Policy, and Frontier-Validated Development

Mexico is one of the world’s most open manufacturing economies and enjoys privileged access to the United States through a dense cross-border production system. Yet real GDP per capita has risen by less than 1 percent per year since the mid-1990s, while total factor productivity has declined. This article explains the paradox by combining two propositions. The first, drawn from the Economics of Belonging, is that access to the consumption of the global middle class validates production against the international technological frontier. The second is that domestic saving determines whether frontier-linked opportunities can be expanded, diffused, and embedded in the national economy. Mexico satisfies the access condition but not the accumulation condition. Its export sectors can therefore remain internationally competitive while aggregate convergence remains weak. The article adds a necessary qualification: saving alone is insufficient. Industrial policy is required to channel a larger investible surplus toward infrastructure, domestic suppliers, engineering, skills, innovation, and firms capable of competing internationally. Using Penn World Table 11.0, the paper calculates the gross investment consistent with annual GDP-per-capita growth of 4 and 5 percent. With Mexico’s 2019–2023 capital-output ratio of 4.10, depreciation rate of 3.84 percent, and population growth of 0.78 percent, the estimated requirement is approximately 35.5 percent of GDP for the 4 percent target and 39.6 percent for the 5 percent target. Better capital efficiency could reduce these requirements to 30.3 and 33.8 percent, whereas weak efficiency could raise them to 40.7 and 45.4 percent. These estimates are accounting benchmarks rather than forecasts. Their central implication is that Mexico requires both a substantially higher national saving effort and an industrial policy capable of increasing the productivity and domestic diffusion of additional investment.