Industrial policy matters: the co-evolution of economic structure, trade, and FDI in Brazil and Mexico, 2000–2015

Abstract

The early work by Kuznets and Chenery originally developed the theme that economic development was not simply a synonym for aggregate GDP growth, but entailed qualitative changes in the structures of production, employment, and consumption. Later work in international business and economics explored the co-evolution between FDI and economic structure. We investigate the co-evolution between FDI, economic structure and export structures in the two largest Latin American economies, Brazil and Mexico, over the period 2000–2015. Both initially followed similar development strategies during the import-substitution era. During the liberalization era they followed somewhat different strategies towards maintaining the competitiveness of domestic actors. In addition to the analysis of key indicators, we discuss the role played by industrial policies—or their absence—within Brazil’s and Mexico’s development strategies. Industrial policy instruments, such as infant industry protection, subsidies, tax and financial incentives, as well as performance requirements may be crucial to shift the economic structure in the direction of the desired industries. Tracing the co-evolution between FDI and economic structures, even in the absence of statistical rigour to support causal claims, provides interesting insights for industrial policy in the twenty-first century.