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Macroeconomic policy, external shocks and social protection

Mexico highlights

Mexico must be ready to react to external conditions


The simulations show that Mexico’s economy, its labor markets, and its poverty rates are susceptible to external shocks. In particular, a 50% increase in food prices or a 50% decrease in global prices of Mexico’s main exports would lead to a significant increase in poverty and extreme poverty. A sudden decrease in incoming remittances also has a large impact on poverty since this income source represents half of the income for the 9.5% of rural Mexican households that receive remittances.    

Higher food prices or lower export prices have a large effect on the vulnerable population in Mexico

Poverty is measured as a share of total population. The vertical axis measures the yearly changes, in percentage points from the baseline model results. Please see the full country study for a definition of the simulated scenarios.


Social policies are effective, but also carry a large cost


The most effective policies to mitigate the effect of external shocks would be either: a transfer to poor households with primary school-aged children, a transfer to households with senior citizens, or a reduction in employer contributions to the social security system. This last policy has the largest impact on poverty, directly affecting urban poor households who are most likely to work in the formal sector. The five public policies simulated show that the fiscal cost of their implementation would crowd-out private investment, as government financing would compete with private sector investment for domestic funds.

Social policies can be effective in mitigating the impact of external shocks on the poor, but are fiscally costly

Poverty is measured as a share of total population. Fiscal balance is measured as a share of total GDP. The vertical axis measures the yearly changes, in percentage points from the baseline model results. Please see the full country study for a definition of the simulated scenarios.

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The book "Financing Human Development in Africa, Asia and the Middle East" is forthcoming in the fourthquarter of 2012.

The book's quantitative assessments, conclusions drawn, and policy recommendation are prepared based on the country studies of the project "Realizing the Millennium Development Goals through socially inclusive macroeconomic policies".

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