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Original Research Article
Export-led growth and inflation targeting: Foreign and internal restriction of growth in Mexico
Roberto Valencia Arriaga1* and Angélica Hernández Leal2
1Universidad Nacional Autónoma de México, Facultad de Economía,Mexico
2Universidad Autónoma del Estado de México,
*Corresponding Author Email: rova_35(at)yahoo.com.mx; angiehlmx(at)hotmail.com
Tel.+52 155 1935 6485; +52 155 5169 4300
Article Number: | Pages: | | DOI:
Received: January 14, 2017 Accepted: January 29, 2018 Published: January 31, 2018
Abstract
The aim of this article is to demonstrate that in Mexico, the growth strategy that is based on the export-led growth hypothesis and the policy to control inflation through the well-known inflation-targeting regime are incompatible. In fact, both become the external and internal restriction of growth, respectively. From the construction of a simple model of four equations inspired by Kalecki’s ideas, we discuss the effectiveness of these two strategies in the Mexican economy, while also using a graphical analysis based on official statistics. Our key findings show that this incompatibility arises because an increase in exports requires a competitive exchange rate, and the import of inputs- which represent over 70% of the raw material used in the production of export goods- has inflationary effects. We also point out that the key to solving this dilemma is in the real wage, which until now has remained constrained, contributing to the internal restriction of growth.
JEL Clasification: F43, F31, E52
Keywords: Economy growth in open economies, exchange rate,. monetary policy