UN DESA | DPAD | Development Policy Analysis Division
Capacity Development and Advisory Services
Macroeconomic policy, external shocks and social protection
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
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.