Policies for Industrial Learning in China and Mexico

Kevin P. Gallagher, Mehdi Shafaeddin
RIS-DP # 150

Previous work has shown that the results of both China and Mexicos export-led market reforms over the past quarter century have been strikingly different. In contrast to China, Mexico has not managed to increase the value added of its exports of manufactured goods and has subsequently had a difficult time competing with China in world markets. Building on this previous work, in this paper we conduct a comparative analysis of the role of government policies in industrial learning and the development of capabilities of indigenous firms in Mexico and China in order to shed light on why China is outperforming Mexico. We find that Mexico and China have had starkly different approaches to economic reform in this area. Mexicos approach to reform has been followed a neo-liberal path, whereas Chinas approach could be described as neo-developmental. Mexicos hands-off approach to learning has resulted in a lack of development of endogenous capacity of domestic firms, little transfer of technology, negligible progress in the upgrading of industrial production, and little increase in value added of exports. By contrast, China has deployed a hands-on approach of targeting and nurturing domestic firms through a gradual and trial and error led set of government policies.