Uneven Development and the Liberalisation of Trade and Capital Flows: The Case of Mexico

Peter Skott and Mehrene Larudee

Cambridge Journal of Economics, 1998, vol. 22, issue 3, 277-95

Abstract: A dual economy model is used to analyze the preconditions for successful industrialization under different trading and investment regimes. Assuming increasing returns to scale in industry and decreasing returns in agriculture, it is shown that protectionism may aid economic development at some point in a country's development process but retard it at others, that the desirable degree of openness depends on the stage of development already attained, and that improvements in agricultural productivity may reduce the overall rate of growth under a free-trade regime. Applying the model to Mexico, it is argued that liberalization is likely to bring long-run industrialization in the Mexican case but that this strategy implies substantial costs to a large segment of the population in the short and medium term. Copyright 1998 by Oxford University Press.

Date: 1998
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