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Chapter 22: Problem 3

An article in the Economist on the Mexican economy noted, "A huge, unproductive informal sector and general lawlessness also drag the economy down." If these factors were the main barriers to more rapid economic growth in Mexico, would that be good news or bad news for the Mexican government's attempts to increase its economy's growth rate? Briefly explain.

Short Answer

Expert verified
The huge informal sector and general lawlessness slowing down Mexico's economic growth is generally bad news for the Mexican government's attempts to increase the growth rate of its economy, as these issues present significant challenges. However, recognizing these issues can also be viewed as the first step in addressing them, thus potentially turning it into good news.

Step by step solution

01

Understanding the Informal Sector

The first part to examine is the concept of the informal sector. The informal sector consists of businesses that are not registered or recognized as legal entities and usually don't pay taxes. It includes activities that are not covered by formal labor protections and don't have access to benefits or regulatory systems. Though it can contribute to job creation, it is typically associated with lower productivity and quality of jobs than the formal sector. Therefore, a large informal sector signals that many workers are engaged in unproductive labor, which can hinder economic growth.
02

Understanding Lawlessness

Lawlessness refers to a state of disorder due to a lack of law enforcement or non-adherence to the rule of law. In economic terms, this can lead to unpredictable business environments, discourage investment, and eventually slow down economic growth. Disorder and crime can disrupt daily operations, increase costs, and create uncertainty, which are not conducive for businesses to thrive.
03

Impact on Economic Growth

Given the constraints presented by the unproductive informal sector and lawlessness, it can be interpreted that these factors are indeed barriers to more rapid economic growth in Mexico. As we know, economic growth is boosted by productive labor and a favorable business environment, among other factors.
04

Evaluation for Mexican Government

It can be seen as bad news for the Mexican government's attempts to increase its economy's growth rate, as these factors present challenges that need to be addressed. Tackling these issues would require significant effort and resources, including implementing policies to formalize the informal sector or improve law enforcement. However, recognizing these issues is the first step towards addressing them and improving economic performance. On the other hand, the government now has identified areas to focus on in order to enhance growth, which can be viewed as good news.

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Informal Sector
When we talk about the informal sector, we're referring to all the economic activities that operate outside of the official government regulatory framework. This includes everything from street vendors to home-based businesses that don't formally register with the government bodies or pay taxes. While it might sound like a small part of a nation's economy, in places like Mexico, the informal sector is a significant player.

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Most popular questions from this chapter

A column in the Wall Street Journal considered two observations about the U.S. economy: "We live in an era of accelerating technological progress" and "In the years since the recession \(\ldots\) the economy has been growing very slowly." The writer concluded, "Both statements can't be completely correct." Do you agree with the writer's conclusion? Briefly explain.

Why is the role of entrepreneurs much more important in the new growth theory than in the traditional economic growth model?

Some economists argue that the apparent slowdown in productivity growth in the United States in recent years is a measurement problem resulting from the failure of GDP to capture the effects of many recent innovations, such as cloud computing. James Manyika, head of technology at McKinsey \& Company, has argued that for many of these innovations, "we have all these benefits but we're not paying for them." a. Before the arrival of the Internet, people looking for facts, such as the population of France or the salary of the president of the United States, had to go to the library to look them up. Now people can find that information in a few seconds with a Google search. Are the benefits to you of being able to do a Google search included in GDP? Briefly explain. b. Does your answer to part (a) indicate that the slowdown in U.S. productivity growth in recent years is just a measurement problem? What other information would you need to arrive at a definite answer?

(Related to the Apply the Concept on page 742) Economist Charles Kenny of the Center for Global Development has argued: The process technologies-institutions like laws and inventory management systems that appear central to raising incomes per capita flow less like water and more like bricks. But ideas and inventions \(-\) the importance of [education] and vaccines for DPT - really might flow more easily across borders and over distances. If Kenny is correct, what are the implications of these facts for the ability of low-income countries to rapidly increase their rates of growth of real GDP per capita in the decades ahead? What are the implications for the ability of these countries to increase their standards of living? Briefly explain.

(Related to the Apply the Concept on page 742) In his book The White Man's Burden, William Easterly reported: A vaccination campaign in southern Africa virtually eliminated measles as a killer of children. Routine childhood immunization combined with measles vaccination in seven southern African nations starting in 1996 virtually eliminated measles in those countries by \(2000 . \mathrm{A}\) national campaign in Egypt to make parents aware of the use of oral rehydration therapy from 1982 to 1989 cut childhood deaths from diarrhea by 82 percent over that period. a. Is it likely that real GDP per capita increased significantly in southern Africa and Egypt as a result of the near elimination of measles and the large decrease in childhood deaths from diarrhea? If these events did not increase real GDP per capita, is it still possible that they increased the standard of living in southern Africa and Egypt? Briefly explain. b. Which seems more achievable for a developing country: the elimination of measles and childhood deaths from diarrhea or sustained increases in real GDP per capita? Briefly explain.
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