Essays on the Mexican economy

Abstract

The analysis of the Mexican economy is important because some of its developments have had international repercussions, and the lessons learned from Mexico may be applied in other developing countries. This dissertation comprises three essays related to the Mexican economy. The first two are connected to the Mexican banking industry, while the third essay analyzes the Mexican economy since WWII from an endogenous growth perspective. The first essay investigates the functional relationship between concentration and interest-rates in the Mexican commercial banking industry. A fundamental contribution of this essay is the use of parametric, nonparametric, and semiparametric procedures to determine the functional form of the concentration and interest-rate relationship. We check for regularities across products, and over time. The semiparametric estimation dominates the other methods. The resulting functional form seems to support the prediction of the structure-performance paradigm of a positive concentration-price relationship. In the second essay we use Cox (1972) proportional-hazards models with time-varying covariates in order to identify the characteristics that cause Mexican banks to disappear. We conclude form this study that the evolution of the Mexican banking system has been determined by the asset quality, the earnings, and the liquidity ratios (CAMEL-type financial ratios). Moreover, we use the estimated time-varying coefficients to analyze the effects of moral hazard form risk-taking induced by the Mexican government deposit insurance scheme, FOBAPROA. We find that FOBAPROA affected the coefficients exacerbating financial problems already present. Finally, in order to analyze the performance of the Mexican economy since WWII, the third essay employs a two-country endogenous growth model. An implication of this growth model is that because of technology transfer, the U.S. (R&D-performing country) and Mexico (implementation R&D country) converge to parallel growth paths, as long as some minimum conditions in terms of institutions and human capital are met. We find suggestive evidence that a lack of adequate institutions and human capital base are likely to contribute to the explanation of the poor performance of Mexico's GDP per capita after the reforms in the 1980s.