Mexico’s liberalization strategy in the 1990s aimed to stimulate domestic economic growth by increasing the productivity and competitiveness of export-oriented manufacturing. Eschewing past industry and macro-economic policies which promoted domestic firms, liberalization policies favored foreign firms. While industry policies were mostly “neutral,” macro-economic policies, especially high interest rates and an overvalued exchange rate, created a climate conducive to foreign, rather than domestic, investment. The hope was that the benefits of foreign investment would “spill over” to local firms and boost domestic investment and economic growth. By one set of standards, the strategy was somewhat successful. A simple perception of success, however, obscures a confusion of means and ends. The central goal of a development strategy isn’t—or shouldn’t be—to increase FDI and exports but rather to improve the lives of people, including by promoting sustained and sustainable industrial growth. This paper examines the performance of the FDI-led development strategy between 1994 and 2002 against the goals of sustainable industrial development.
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