Regional development imbalances in Mexico; is there a real and pragmatic regional development strategy?

Author: Cynthia Vernica Arredondo Cabrera Date: 23 July, 2012 Name of the Program: Master's in International and Development Economics First supervisor: Prof. Dr. Ulrich G. Wurzel Second supervisor: Dipl.-Vw. Dipl.-Geogr. Lech Suwala

Table of contents Abstract 1. Introduction ................................................................................................................... 1 2. The development context in Mexico. ............................................................................ 2 2.1. A country snapshot .............................................................................................. 2 2.2. Human Development Index of Mexico. ................................................................. 4 2.3. Evolution of the Mexican growth strategies (from 1960- 2000) ............................ 5 2.4. The Mexican state approach to regional development ........................................ 10 3. Regional policies: state of the art in the international context ................................... 11 3.1. Concepts fundamentals ...................................................................................... 11 3.2. The OECD perspective and the endogenous growth theory. ............................. 13 3.3. The European Union Regional Policy. ............................................................... 17 3.3.1. Cohesion Policy: objectives. ................................................................. 18 3.3.2. Cohesion Policy: three funds. ............................................................... 19 3.3.3. Regionalization of the European Union. ............................................... 20 4. Regional disparities in Mexico .................................................................................... 21 4.1. Causes of regional disparities ............................................................................. 21 4.1. Spatial disparities: some indexes. ....................................................................... 22 5. Mexican regional development policy ........................................................................ 33 5.1. Regional development policy. 2001- 2012. ........................................................ 33 5.2. Two National Development Plans. ..................................................................... 34 5.3. Mesoregions and trust funds. ............................................................................. 35 5.4. Regional Development Unit.. .............................................................................. 37 5.5. Program of Urban Development and Land Planning. ......................................... 39 6. Conclusions ................................................................................................................ 44

Information sources. ............................................................................................................... 49 Appendix 1. Mexican states abbreviation ............................................................................... 56 Appendix 2. List of figures ...................................................................................................... 57

Abstract

This research attempts to approach the current structure of an emerging Mexican regional policy, understanding its origins and the poor efforts for its development i.e., a regional policy that is hardly marked by an urban vision. In Mexico, urbanization processes and regional policies are strongly linked, to a great extent as a result of the growth strategies followed since 1960, beginning with a protectionist policy during which the Mexican economy enjoyed certain prosperity reflected in the high rates of GDP growth. The protectionist model was considered depleted by early 1980s, with the beginning of a Mexican economic crisis that lasted the whole decade, and whose causes were surely internal, but some international constraints also contributed to the decline of growth. This is one of the worst decades in economic growth in Mexico of the twentieth century. In the 1990s, looking for a model to assist the economic recovery, came the abrupt economic liberalization and privatization processes. Despite the dramatic changes in growth strategies, the regional inequalities in Mexico have been a constant, which during the protectionist policy era tended to decrease and for the liberalization era have tended to increase until today. Herein are exposed the Mexican regional policy strengths and weaknesses, showing that currently, regions in Mexico and their development have not had a major weight in the national policy agenda. Extreme poverty and unequal income concentration are topics that need to be tackled and a strong regional policy could bring potential benefits to this purpose. *12,000 words.

1. Introduction. Mexican economic and social development and the policies involved have an impact at regional levels. In fact, it is precisely at this level where severe regional inequalities can be observed, meaning huge differentials in the development level among the Mexican states. This argument leads to inquire the current development strategies. In this vein arises the reasoning and the question of the research: Regional development imbalances in Mexico; is there a real and pragmatic regional development strategy? The research presented in this paper has the primary objective of providing an answer. The reader may wonder why regions matter for development studies. Their relevance, however, is great due to certain features that are here emphasized. First, within regions exists a wide variety of development stakeholders, rural and urban populations, the private sector and different levels of government, all of whom should be taken into account in policy making of economic and social subjects. Different stakeholders can work jointly for the establishment and achievement of common goals. Regions can represent an advantage when creating knowledge networks and clusters of diverse natures (innovation, technologies, private sector, economic sectors). Furthermore, regions matter due to the concentration of various natural resources. Different regions can have varied approaches to development, depending on the needs of the territorial zones and the stakeholders involved. This variety allows for alternative strategies for growth and development, which can be complementary or associative. The feedback between regions depends on the degree of interconnectivity. Regions at a subnational level can better represent the local interests. They are a synergy of economic, social and political power to push policy makers towards regional common interest. Additionally, regions can aggregate all the factors and conditions necessary to increase competitiveness and face the challenges of globalization. Throughout this research, regional policies in the national and international contexts are presented with the aim to find out whether there is in Mexico a real regional development strategy to tackle regional imbalances.

The second part of this paper presents some essential features of the country, identifies its current status in terms of human development, the growth strategies executed since 1960 and the prevailing approach of Mexican government to regional development. In the third section, some fundamental concepts related to regions are explored. The international trends in this area are also presented by analyzing the OECD statements regarding regional polices in the world. These statements are compared with the neoclassical and endogenous growth theories to identify the theoretical orientation of the current international regional policies. The European Unions regional policy is also analyzed as a sample of a well-structured regional policy. Its genesis details are examined to find out if it may represent a prototype for the Mexican regional policy. This research highlights the Mexican regional imbalances in the fourth part, where five causes are identified for the case study of this paper. Additionally, this section presents some figures representative of the economic performance and social wealth in order to give the reader a notion of the severity of regional imbalances. The fifth section, Analysis of Mexican regional development policy, examines the existing regional policy in Mexico, identifies the political and institutional tools and reveals the overall strengths and weaknesses prevailing in the political approach. Last but not least, the conclusions include a discussion of the research findings and suggest ways Mexican policy makers could rethink the reasoning and the direction of regional policy.

2. The development context in Mexico. 2.1. A country snapshot. The aim of this section is to provide an overview of the features of Mexico, to give more sense to the regional development policy analysis in the coming chapters. Mexico has a federal government with a President in the Executive Power, elected for a nonrenewable six-year term. The Congress is bicameral, consisting of the Senate and the Chamber of Deputies. There are three vertical levels of government: municipalities, states and the federal level. In the political division of the territory the municipalities are the smallest units; the states contain 2

different numbers of municipalities; and the federation represents the country as a whole. Mexico is a country with 31 states and a capital, Distrito Federal. In terms of territory size, compared with the Latin American countries, the Mexican territory is only exceeded by Brazil and Argentina. As the analysis done in this paper is per state, the first map includes the names of the states that constitute Mexico and the population for each state. Map 1. Political division of Mexico and population per state. 2010.

Code 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Name Aguascalientes Baja California Baja California Sur Campeche Coahuila Colima Chiapas Chihuahua Distrito Federal Durango Guanajuato Guerrero Hidalgo Jalisco Mxico Michoacn

% of the Population total 2010 populatio 1.184.996 1,1 3.155.070 2,8 637.026 0,6 822.441 0,7 2.748.391 2,4 650.555 0,6 4.796.580 4,3 3.406.465 3,0 8.851.080 7,9 1.632.934 1,5 5.486.372 4,9 3.388.768 3,0 2.665.018 2,4 7.350.682 6,5 15.175.862 13,5 4.351.037 3,9

Code Name 17 Morelos 18 Nayarit 19 Nuevo Len 20 Oaxaca 21 Puebla 22 Quertaro 23 Quintana Roo 24 San Luis Potos 25 Sinaloa 26 Sonora 27 Tabasco 28 Tamaulipas 29 Tlaxcala 30 Veracruz 31 Yucatn 32 Zacatecas Total population

% of the Population total 2010 populatio 1.777.227 1,6 1.084.979 1,0 4.653.458 4,1 3.801.962 3,4 5.779.829 5,1 1.827.937 1,6 1.325.578 1,2 2.585.518 2,3 2.767.761 2,5 2.662.480 2,4 2.238.603 2,0 3.268.554 2,9 1.169.936 1,0 7.643.194 6,8 1.955.577 1,7 1.490.668 1,3 112.336.538 100

Source: Instituto Nacional de Estadstica y Geografa (INEGI), (2010c), Censo de poblacin 2010. Mxico, pp. 9.

Mexico is considered a very rich country in terms of climate and natural resources; it has tropical, desert, dry and temperate weathers; fossil fuels, minerals, water and forestry resources, and a great diversity of flora and fauna. According to information from Instituto Nacional de Estadstica y Geografa (National Institute of Statistics and Geography) (INEGI) currently in Mexico 6.8% of the total population speaks an indigenous language, most of them located in the south. The southern states with highest shares of indigenous population are: Yucatan 63%, Oaxaca 58%, Quintana Roo 34% and Chiapas 33%. In contrast, the northern states with lowest shares of indigenous population are Coahuila and Nuevo Len, both with only 2% of their total population (INEGI, 2010c). 2.2. Human Development Index of Mexico. As an approach to its degree of development compared with the world, this section uses the Human Development Index (HDI) to place Mexico in an international context. The reader should be aware that the HDI at a national level does not represent the countries internal disparities; a country with a high HDI can have at the same time very high distribution inequalities. Still, the HDI at a national level can provide an idea about the countries development degree. In the Human Development Report 2011 from the United Nations Development Program (UNDP), the countries are classified in four categories according to their HDI. The first category is Very High Human Development (countries with an HDI between 1 and 0.79.) The five countries at the top of this list are Norway, Australia, Netherlands, the United States and New Zealand. The second is the High Human Development category (countries with an HDI between 0.78 and 0.69). Of the forty seven countries in this group, Mexico is in tenth place with and HDI of 0.77. The countries with a very similar HDI as Mexico are Bulgaria (0.77), Saudi Arabia (0.77), Panama (0.76) and Serbia (0.76). In the Latin American context, Mexico has a higher HDI than Venezuela (0.73), Brazil (0.71) and Colombia (0.71). The third category is Medium Human Development (countries with an HDI between 0.68 and 0.52). The top five countries in this group are Jordan, Algeria, Sri Lanka, Dominican Republic and Samoa. Finally, the fourth category is Low Human Development, which includes all those countries that have an HDI between 0.51 and 0.28, the lowest HDI in 2011 belonging to the Democratic Republic of the Congo.

Despite the fact that Mexico belongs to the group of countries of high HDI, it is the country with the highest inequalities of GDP per worker compared to the Organisation for Economic Co-operation and Development (OECD) member countries (see Graph 1, note Mexico at the very bottom). Graph 1. Gini Index of inequality of GDP per worker. (OECD member countries).1

Source: Organisation for Economic Co-operation and Development (OECD), (2009), Reviews of regional innovation. 15 Mexican states, figure 1.1.8, pp. 65.

2.3. Evolution of the Mexican growth strategies (from 1960- 2000). In order to understand the origin of the current regional approach of Mexican policy, it is necessary to talk about the history of the industrialization and growth strategies and their impact on regional development. Three stages are identified: 1) The economic miracle (1960- 1980), period of the Import Substitution Industrialization (ISI) policy in which the manufacturing sector strengthens; 2) The lost decade (1980- 1990), a period of recession, high external debt and of the reorientation of the Mexican economy; and 3) Export model
1

The United States is a more drastic case about of HDI blindness of internal inequalities. It has an HDI of 0.90, placing it in the Very High HDI group despite its Gini index of 0.20 in 2003 (very close to Mexico in the above OECD table), meaning it has a very high degree of unequal income distribution.

and markets liberalization (1990- 2000), a time when the Mexican economy consolidates its orientation towards openness with the North American Free Trade Agreement (NAFTA). 1) The economic miracle (1960- 1980). The ISI policy helped to reduce regional disparities in Mexico. The ISI was instrumental in strengthening national industry. The state was the main driver of the ISI through a protectionist policy of the national industry by import tariffs and other trade barriers and the sale of cheap inputs produced by state enterprises. The flows of foreign currency increased through foreign loans, foreign direct investment (FDI) and oil exports. The agriculture sector did not get any benefit from ISI policy in terms of FDI; instead, the manufacturing industry emerged stronger in this period. Graph 2. FDI inflows to Mexico by sector (millions of US dollars). 1980- 2011.
25,000

20,000

Agriculture Industry Services

15,000

10,000

5,000

0
1980 1985 1990 1995 2000 2005 2010

Source: Own elaboration with information from Secretara de Economa (SE), (2012).

During ISI policy there was not an adequate relocation of emerging industries. Moreover, industries that were supported were mainly centralized in the northern border and in the center of the country. Despite the mixed results of ISI, this period is known as the economic miracle because the GDP grew 6.7% in average from 1960 to 1980, being the two best years 1964, with 11.9%, and 1979, with 9.7% (World Bank data, 2012a). Additionally, in this period Mexico stopped being a rural country due to the growing industrialization and an increasing population in urban areas caused by the rural- urban exodus. During the 1980s, Mexico emerged as an urban country, in this decade 55% of the population was concentrated in 227 cities (Garza, G., 2010, pp. 82). 6

The ISI policy initially had a positive regional impact. Carlos Vilalta (2010, pp.96) mentions that a decrease of regional disparities can be observed due to the macroeconomic factors brought by the industrialization: the economy growing at a faster rate than the population, low inflation, employment creation through the expansion of industry, protection of the local private sector and strategic public investment. These factors led lagging states to achieve faster rates of growth than the already advanced states. The new industrialization led to a transformation process in many senses. Employment structures, the regions, the cities and the inner- city interactions, all these meant new demographic challenges. The government began to be interested in regional development in urban terms. 2) The lost decade (1980-1990). By the early eighties, ISI policy was considered depleted because the industry that emerged from it showed low productivity without export capacities. As a consequence of the high amounts of foreign loans needed for ISI execution, the foreign debt increased to 45% as a share of the GDP for 1982 (Gonzlez Marn, 2002, pp. 20). At the same time the international oil prices decreased, weakening the oil export industry, hence foreign currency inflows. The interest rate of the international loans rose, as well. These external constraints made the Mexican foreign debt higher and harder to pay. The Mexican government negotiated the payment with the International Monetary Fund (IMF), which suggested the contraction of public expenditure as a precondition for debt payment negotiation. As part of the fiscal austerity, Mexico executed a process of privatization of state enterprises in line with the Washington Consensus. A high foreign debt, the contraction of public spending, privatization of state enterprises (railways, communications and banks), inflation, that caused a significant differentiation in the real wages of the various states (Vilalta C., 2010, pp.99) and a weak national industry due to low levels of diversification and productivity, resulted in a recession that lasted the entire decade. During this period GDP grew only 1.6% (Garza, G., 2010, pp. 33). Despite the internal economy weakness, Mexico became part of General Agreement on Tariffs and Trade (GATT) in 1986, which began a new trend towards market liberalization. The lost decade had a strong impact on regional inequalities. The strongest effects were observed predominantly in the agricultural states of the south, while the less affected were the industrialized states of the north. 7

3) Export model and markets liberalization (1990- 2000). In the 1990s, the new national strategy for economic growth was focused towards exports, and the private sector began to be considered the main engine of industrialization and economic growth. The political priority was the expansion of foreign economic relations. The recession of the last decade meant a reduction of the domestic market, an advantage to augment export volume. In 1994, the first of several trade agreements, NAFTA, came into effect; it was assumed that it would bring bigger FDI inflows from the United States to Mexico; in reality, the FDI inflows continued as in past years, and even with a downward trend, reaching the lowest levels in 2010 since 1980. Graph 3. FDI inflows to Mexico from USA, 1980- 2011 (% of the total annual FDI).
90 80 70

60
50 40 30 20

10
0

2006

2008

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Source: Own elaboration with information from SE, (2012).

The Mexican economy dependence on the United States market and the productive specialization of certain branches of the Mexican industry are some consequences of this trade agreement. The region that benefited most from this export model was the north because it is the region where most of the export industries are concentrated.

2010

Graph 4. Main export markets in Mexico, 2010 (% of the total).

USA 80% Canada 4% Japan 1% Brazil 1% Other 14%

Source: Parker, K. ed., (2011), Country Report Mexico, UK: The Economist Intelligence Unit, pp. 20

Exports and FDI have benefited only certain border cities with manufacturing industry, tourist regions and regions specialized in financial services, productive sectors characterized by high shares of growth. As a result of trade liberalization, agricultural and rural regions have been neglected, deepening regional inequalities. Undoubtedly there has been an increase in exports. According to World Bank data (World Bank, 2012b) , Mexican exports raised from 16.8% in 1994 to 30.4% in 1995 as share of the GDP, a percentage that has remained to date with few variations, exports representing 30.8% of GDP for 2010. However, the overall performance of the economy does not exhibit the same growth, as observed in the graph below. The GDP growth since 1982 shows a downward trend. In fact, it is during the years of ISI that GDP growth shows a better performance. Graph 5. GDP growth in %, 1961- 2010.
15 10 5 0 -5 -10
Source: Own elaboration with information from the World Bank, (2012a).

1961

1966

1971

1976

1981

1986

1991

1996

2001

2006

The differentiated economic growth of Mexico in each of the analyzed stages depends on endogenous and external factors and constraints. Moreover, this differentiation shows an accelerated urban development of cities that traces state priorities regarding regional development policies. The main consequence of the economic policies since 1960 in demographic and economic terms is the consolidation of some cities as the leading urban centers of the country. The current regional strategy consequently focuses on strengthening the cities and metropolitan areas2. 2.4. The Mexican state approach to regional development. Growth and development strategies have undergone drastic changes since 1960, whereas regional imbalances have remained. Despite this context, the political approach of the Mexican state to regional development has been the same: the consolidation of urban areas. Mexico showed accelerated urban growth from 1960- 1980 in part due to the high rate of migration from rural to urban areas. Since then migration has been continuous, the population concentration being a constant worry of the state. Mexico was not an isolated case in this issue. In 1971, the United Nations (UN) prioritized human settlements and urbanization in the international agenda. The UN vision is the one that the Mexican state uses to define regional development policies focused on population distribution and land planning. For instance, Mexican regional policies seek a better population distribution in the whole territory through human settlement management. In this sense, regional development is subordinated to the urban development programs. As part of its interest for urban development, the Mexican government created in 1978 the Sistema Urbano Nacional (National Urban System). It identifies the main cities according to population size, it recognizes the ties among them, their structures and their functional features, it defines the territorial borders of the cities and metropolitan zones and it is the point of departure for policy makers to make decisions about resources and policies. Hence, the organization of the whole national territory is understood from the cities and their areas of influence.

Regarding Metropolitan zones concept, there are three valid definitions established in 2005 by Secretara de Desarrollo Social (Secretariat of Social Development) of Mexico: 1) the set of two or more municipalities where a city is located, with 50,0000 inhabitants or more, whose urban area, functions and activities are beyond the geographic limits of the municipality that originally contained it, incorporating to neighbor municipalities, predominantly urban, to its influence area; 2) single municipalities containing a city of one million or more inhabitants; and 3) all municipalities with cities of 250 thousand or more inhabitants that share conurbation processes with cities of United States.

10

The system of cities and the current regional development approach do not emphasize regional inequalities reduction as an objective, a problem that will be analyzed further in this research.

3. Regional policies: state of the art in the international context. 3.1. Concepts fundamentals. There are many definitions concerning regions, regionalization, regionalism and regional development, most of them linked to international economics and trade blocks among countries. The fields and parameters of regional action are very diverse. Hence, the reader must be aware of the flexibility of the concepts in their application. Moreover, it must be considered that concepts evolve according to historic, political, social, and economic processes. The definitions quoted here can be applied in a national context when considering the subnational territorial divisions of a country, and in an international context, when taking in to account international blocks. Beginning with the most basic concept, a region can be understood: [] as units or zones based on groups, states or territories, whose members share some identifiable traits. (Fawcett, L., 2005, pp. 21). [] a limited number of states linked together by a geographical relationship and by a degree of mutual interdependence. (Nye, J., 1977 cited in Tavares, R., 2004, pp. 5) [] geo-economic spaces integrated by one or more adjacent states, which homogeneity or internal similarity (economic, social and natural) is major than that observed together with any other neighboring states. (Carrillo Arronte, R.,1973 cited in Hernndez Laos, 2005, pp. 43 ). All these definitions make reference to a certain level of economic, geographic, political and social homogeneity as a preliminary condition for regions delimitation. However, some scholars argue that regions delimitation are defined by homogeneous and heterogeneous elements; Porras (2007, pp. 164) raises a debate in this concern: on the one hand the regions delimitation depend on demographic and geographic aspects, the economy, cultural features of human settlements and natural resources. The interdependence of these elements causes the regions to have similar production factors, hence homogeneous regions. On the other hand, globalization impacts all levels of social 11

and economic organization, making the regions more heterogeneous. There is no convention in this regard. It is also relevant for the purposes of this research to differentiate between regionalism and regionalization; the first is defined as: [] a policy and project whereby states and non-state actors cooperate and coordinate strategy within a given region. The aim of regionalism is to pursue and promote common goals in one or more issue areas. (Fawcett, L., 2005, pp. 24). [] institutionalized intergovernmental coalitions that control access to a region. (Tavares, R., 2004, pp. 6) While regionalization is understood as: [] regionalization is first and foremost a process. Like globalization, it may take place as the result of spontaneous or autonomous forces. As its most basic it means no more than a concentration of activity of trade, peoples, ideas, even conflict at a regional level. This interaction may give rise to the formation of regions. (Fawcett, L., 2005, pp. 25) Therefore regionalization is the process of region delimitation, which could be driven by markets, local features and needs, while regionalism has to do with policy creation at the supranational or subnational levels. It is also necessary to define regional development, due to the fact that this research is devoted to analyzing regional development policies: Regional development is the process of sustained change which its end is the permanent progress of the region, of the regional community as a whole and of each inhabitant of the region, [] is the process of generating economic wealth, social welfare and sustainability (Boisier, 1996, pp. 6) The process of social and economic growth of certain geographical units to ensure the rural-urban functionality and the quality of life improvement for population [] (Secretara de Desarrollo Social, 2001, pp. 137) The tool of regional development is policy; hence regional development policy is understood as: [] is the use of economic incentives to attract industry to one location or another. (Sachs and McCord, 2008, pp. 2) 12

This definition focuses mainly on economic incentives which could support small and medium enterprises, the tax policy favoring certain sectors, land regulation, support to cooperatives creation and credits access. Nevertheless, regional development policy must incentivize other things, such as research and development, the enhancement of skilled labor, creation of networks and clusters of various types, innovative projects and civil organizations, among others. Finally, defining regional economics helps in creating a concrete approach to a regional development policy aim. The good performance of regions will be translated into the good performance of the country. Hence, regional development policies ultimately benefit the economic growth and social welfare of a country. As Krugman (2009, pp. 146) states: The nature of regional economics- that is, how the economies of regions within a nation fit into the national economy. In this sense, regions delimitation is driven by economic integration with macro- economic arguments for improving the economic performance of a country, or of the all Union in the case of the European Union (EU). When talking about regions, their policies, processes and goals, it is unavoidable to talk about geographic units and of the very wide diversity of factors that delimitate them. It is equally essentially to talk about cooperation, coordination and integration in economic, social and political fields in order to achieve common goals. 3.2. The OECD perspective and the endogenous growth theory. There is not a global guideline for regional development policies, that is, if they should address concrete problems in specific lagged areas or pursue economic growth in all regions. Even regional development policies can easily be confused with pro- poverty policies or with policies that support only certain sectors of the economy. Therefore, the identification of the best practices in regional development is difficult; there is no blue- print in this regard. Regardless of the lack of an international convention, the OECD statements concerning regional policies represent an international trend in regional policy practices, at least for the member countries like Mexico. The OECD considers that during the 1980s and 1990s, globalization posed new challenges to intra-country regions. Trade liberalization, the increasing presence of transnational 13

companies and a narrowed public budget have contributed to wider gaps among countries and regions. This statement is confirmed by Cypher and Dietz (2004, pp. 234) mentioning that within the period from 1965 to 1980 low income countries grew faster than high income countries, but from 1980 to 2000, the opposite situation occurs. There is a widening gap in the rate of growth between low and high income countries. As a response, countries are changing their regional development policies. To observe how the countries have changed their regional policies to face regional inequalities, in 2010 the OECD executed an analysis of member countries regional policies. The Organization concluded that regional development policies have evolved over the last ten years, a change that has been defined as a shift in the regional development paradigm (OECD, 2010). More specifically, they have gone from an exogenous development of regions (defined as the old paradigm) to an endogenous development of regions (defined as the new paradigm). The old paradigm entails governmental funds to address investment and infrastructure, government aid focused in lagging areas for regional disparities reduction; a lagging- regions approach. The new paradigm implies governmental actions devoted to enhancing the capabilities and competitiveness of regions. Regional development is endogenous resourced- based with a broad focus towards all regions. For the OECD, the old paradigm is grounded on an equity principle, whereas the new paradigm is based on an economic growth principle. The following chart contrasts the main aspects of the regional policies in the old and the new paradigms.

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Chart 1.Paradigm shift of regional development policy.

Old paradigm Focus Exogenous regional development New paradigm Endogenous regional development Lack of regional competitiveness, underused regional potential

Causes of egional Regional disparities in income, infrastructure disparities stock, and employment - Governmental aid to address investment and infrastructure Regional '- Government targeted aid interventions in development policy lagging areas '- Targeted actions to regional disparities reduction through transfers

- Governmental actions devoted to increase the capabilities of regions to make them more competitive

General policy framework

Compensating temporally for location disadvantages of lagging regions, responding to shocks (e.g. industrial decline) (Reactive to problems)

Tapping underutilised regional potential through regional programming (Proactive for potential)

General policy approach

Reduce regional through distribution

Improve regional competitiveness

Spatial orientation Targeted at lagging regions policies Stakeholders Theme coverage Central government Sectoral approach with a limited set of sectors

All-region focus Different levels of government, various stakeholders (public, private, NGOs) Integrated and comprehensive development projects with wider policy area coverage

Source: OECD, (2010), Regional Development Policies in OECD Countries, table 1.1., pp. 13. The chart was almost entirely taken from the document; it was adapted, adding more information from pages 11 to 14, in the same document.

The OECD analysis indicates that the paradigm shift is an ongoing process; hence some countries still remain in the old paradigm, while other countries have a clearer policy situated in the new paradigm or have a mixed scheme. As well the OECD recognizes a current trend in expanding support to large cities, as part of regional development policies, to transform them into the main drivers of growth of regional economies. This is the case of Mexican policies, as will be seen in chapter five. Although the analysis explicitly does not refer to any theoretical framework, from the description of old and new paradigms, it can be inferred that they are based in the neoclassical and endogenous growth theories, respectively. In the following paragraphs, the old and the new practices of regional policies will be compared to see in how far they fit in the theories assumptions. Concerning regional inequalities reduction, the neoclassical growth theory predicts the convergence of income among regions through an automatic equilibrium mechanism, 15

explained by factors mobility (labor and capital) and by the law of diminishing returns. The endogenous growth theory does not predict any convergence. Furthermore, it rejects the diminishing returns, proposing instead constant returns to investment. In this sense, neoclassical theory fits with the old paradigm, due to its lagging behind regions approach to help lesser income regions converge with regions of higher income. The endogenous growth theory, on the other hand, fits with the new paradigm and its all- regions approach. Endogenous growth does not imply an accumulation or spatial agglomeration of capital to generate growth as the neoclassical theory does. Spatial agglomeration occurs in the old paradigm when the government intervenes with aid only in lagging regions to address investment and infrastructure. The concept of capital in the neoclassical approach involves investment, savings and technology. In the endogenous approach it is much wider, including education, skilled labor by training, and in general, the disposal and use of technological knowledge as determinant factors in producing output. This wider concept fits with the new paradigm by the integration of regional development projects with a wider policy scope. It is relevant from the endogenous growth theory, that it integrates to the economic factors to growth, other social and political arguments, such as political stability, level of education attained, business environment, population growth, income distribution, institutional structures and all the proper aspects for each economy, at a country or regional level. In this sense, endogenous growth theories are focused on development, whereas neoclassical theories are mainly focused on economic growth. In this regard, the OECD statements are contradictory to the theory because they state that the new paradigm is focused on economic growth, as the neoclassical model would suggest. Endogenous growth implies taking into account very specific features of the countries or regions to define growth strategies. All the factors of growth are generated internally in each singular economy. This is similar to the new paradigm suggestion of tapping underused regional potentials to find internal factors of growth. While the neoclassical approach legitimizes governmental interventions only for the regulation of market forces or to correct market failures, the endogenous growth theories give a strategic weight to governmental participation through polices to enhance the economic growth. For example, subsidies, in the endogenous growth perspective, can be the tool to improve the physical and social infrastructure (institutional processes and 16

performance, legal system enforcement). The neoclassical approach considers subsidies a hindrance of market forces. In this regard in the OECD study, the new paradigm approach is the same as neoclassical growth theory. The comparison shows that regional development policies of the new paradigm, even when they are defined by the OECD as endogenous resources oriented, they are not entirely consistent with the endogenous growth theorys basic statements. 3.3. The European Union Regional Policy. The EU is an international reference in terms of regional policy because it possesses a very well-structured policy. The institutions, programs, tools and processes have been evolving since its creation. Currently, it has a long- term vision and a co- responsibility mechanism in projects execution, monitoring and in funds administration. The regional policy stands out for being inclusive, working jointly with governmental representatives of each country at national, regional and local levels, private sector, non- governmental organizations, trade unions, civil society, academics and many other stakeholders. It is also relevant the wide spectrum of projects financed by the funds, embracing culture, urban and rural development, agricultural projects, among others. Even though it has an all- regions approach, most of the efforts are concentrated in lagging regions. It is interesting to look deeper into the EU and its regional policy, how regional development policy has evolved over time and how its scope has changed. Since the beginnings of the EU in 1957, a regional policy approach was used to reduce the differentiated development levels among member countries. The European Social Fund was created as the first budget management instrument for regional policy. At that time, the actions towards regional development were direct interventions from the government of each state through subsidies and the enhancement of sectoral policies. Early in the 1970s, the European Regional Development Fund was founded. These funds remain in the form of the Structural Funds of the EU. The years 1986 and 1993 were crucial due to the respective formulation of the Economic and Social Cohesion Policy and creation of an additional financing tool for regional development, the Cohesion Fund. Since its conception, the Cohesion Policy has been substantially concentrated in gaps-reduction of lagging behind regions through long term programs, crosssectoral strategies, jobs creation, gender equality, supporting innovative projects, interregional cooperation, the inclusion of rural development, among others. The creation of 17

the Cohesion Policy was a radical change in the political approach to regional development due to the inclusion of social arguments to regional development policy, in addition to the economic growth reasoning of helping lagging regions to catch up. The following chart shows an image of the current regional development policy: the funds as the financing tools, the objectives to which the funds are devoted to, and the types of projects that each fund addresses. The Convergence objective is the priority for regional policy; it is covered by the three funds. Chart 2. EU regional policy program 2007-2013: funds, projects and objectives.
Fund name European Regional Development Fund (ERDF) - Infrastructure - Urban development - Competitiveness - Territorial co-operation - Research - Innovation - Environment conservation Convergence Objectives coverage Regional Competitiveness and Employment European Territorial Cooperation European Social Fund (ESF) - Adaptability of workers and enterprises - Access to employment - Social inclusion - Combating discrimination - Access to the labour market for disadvantaged people Convergence Regional Competitiveness and Employment Cohesion Fund

Projects types

- Environment - Trans-European transport networks

Convergence

Source: Own elaboration with information from the European Commission (EC); European Union (EU) Regional Policy, (2007).

3.3.1. Cohesion Policy: objectives. The addition of new members to the EU in different periods brought regional imbalances to tackle, which necessitated a flexible regional policy that could adapted to the new requirements while always keeping its priority of emphasizing the support to backward regions. From 1989 to 2006 the objectives embraced two dimensions: social and economic. In 2007 there was a drastic change in the objectives with the establishment of a three dimensional regional policy: economic, social and territorial cohesion for the EU. The objectives have an all- regions approach, opening the possibility of access to the finds to more regions. The following chart shows how the regional policy objectives have changed from period to period. It should be noted that the rural areas have always been part of the objectives. It is not entirely devoted to already industrialized areas neither to rural areas; it is a mixed 18

inclusive scheme. In the last period (2007- 2013), the objectives show a major shift by the inclusion of the territorial dimension. Chart 3. EU regional policy objectives from four program periods.
1989 - 1993 Promoting the development and structural adjustment of regions 1 whose development is lagging behind 1994 - 1999 Promoting the development and structural adjustment of regions whose development is lagging behind 2000 - 2006 Promoting the development and structural adjustment of regions whose development is lagging behind 2007 - 2013 Convergence: aims at speeding up the convergence of the leastdeveloped member states and regions

Converting regions seriously affected by industrial decline

Converting regions seriously affected by industrial decline

Regional Competitiveness and Employment: covers all other EU Supporting the economic and regions, that Convergence social conversion of areas facing objective does not cover, with the structural difficulties aim of strengthening regions' competitiveness and attractiveness and employment

Combating long-term 3 unemployment

Combating long-term unemployment and facilitating the integration into working life of young people and of persons exposed to exclusion from the labour market, promotion of equal employment opportunities for men and women Facilitating adaptation of workers to industrial changes and to changes in production systems Speeding up the modernisation and structural adjustment of agricultural structures, of the fisheries sector, and of rural areas Development and structural adjustment of regions with an extremely low population density

Supporting the adaptation and modernisation of policies and systems of education, training and employment

European Territorial Cooperation: supports the cross-border, transnational and interregional cooperation and networks

Facilitating the occupational integration of young people

Speeding up the adjustment of agricultural structures and 5 promoting the development of rural areas.

Source: Own elaboration with information from the EC; EU Regional Policy, (2008a).

The topics incorporated into the regional development agenda are ever broader, the priority topics for funding today being research and innovation, environment, culture, health, transport, energy, employment, social inclusion, education and training. 3.3.2. Cohesion Policy: three funds As mentioned above, the Cohesion Policy possesses three financing tools, the European Regional Development Fund, the European Social Fund (together Structural Funds) and the Cohesion fund. The resource allocation is results-oriented, geared towards the achievement of the objectives.

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The decision of which projects are financed is taken by the European Commission and the government of each member country. The latter are responsible for the funding management. The co-responsibility scheme is also valuable, the projects are financed both by the supranational funds and by the involved countries. It is interesting to observe what the regional policy represents for the EU budget. In the year 1989, 25% was the share of the Structural Funds to the EU budget; for 2007 it increased to 36%. This 11% rise in eighteen years shows the increasing importance of the regional development policy in the EU agenda; probably linked to the accession of countries to the EU. In 2004 alone, ten countries were added3, which had the lowest GDP per capita in Purchasing Power Standard (PPS) in that year among the EU member countries. Likely, this expansion of the EU is related to the continuous increasing allocation of resources to the Convergence objective, rising from 64% in 1989 to 82% in 2007. Regional disparities reduction is also a priority of the Cohesion Policy. Chart 4. Structural funds: % of the EU budget, and the % to Objective 1 (convergence)
Concept Structural Funds: % from the total EU budget Structural Funds: % assigned to Objetive 1 1989 - 1993 25% 64% 1994 - 1999 33% 68% 2000 - 2006 33% 72% 2007 - 2013 36% 82%

Source: Own elaboration with information from the EC; EU Regional Policy, (2008b).

3.3.3. Regionalization of the European Union. The regional policy has two ways of setting regions. This double mechanism is very helpful when there is a large geographical territory with big regional imbalances. Firstly, the member countries are classified according to a convergence criteria base in the GDP per capita of each country. Eligible for funding are the regions whose GDP per capita is lower than 75% of the average in the EU (EU Regional Policy, 2007, pp. 1), but other factors such the population size and the national GDP are also assessed. According the degree of

Countries added to the EU in 2004: Cyprus, Slovenia, Czech Republic, Malta, Hungary, Estonia, Slovakia, Lithuania, Latvia and Poland.

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convergence, countries are classified in four categories; being the priority the countries with the biggest regional imbalances. The second mechanism addresses the managerial needs of a huge territory. The Nomenclature of Territorial Units for Statistics4 (NUTS) is the classification for subdividing national territory. Each member country is divided in three administrative boundaries (NUTS 1, NUTS 2 and NUTS 3) according to population size thresholds for each level. Usually the classification NUTS 2 is the level where the funds are allocated. But to which hierarchical level the regional policies are applied also depends on the national administration of the territory. This broad depiction of the regional policy of the EU gives the reader a good example of a well-structured, adaptable regional policy with its own budget, clear objectives, monitoring systems for projects and funds, a wide participation of stakeholders, a co- responsibility mechanism, specific institutions and programs per period. These features might be replicated in other countries.

4. Regional disparities in Mexico. 4.1. Causes of regional disparities.

In this chapter, some factors that can be considered as the origin of regional disparities in Mexico will be treated briefly. Identified are five causes of regional inequalities. In addition some facts and figures of Mexican regional disparities are presented. For this purpose some indexes are compared to contrast the states that constitute Mexico; the indexes selected are representative of the economic and social development. 1) Accelerated urbanization: in the period from 1960 to 1980, Mexico began an accelerated urbanization process as a result of the newly industrialized areas. It became evident that the Mexican cities growth exceeded the governmental capacities to attend to the needs of a rising population. In 1975, 45.5% of the total population inhabited cities, and for the year 2009 this share rose to 72.3%.

According to current information of the EU Regional Policy webpage, there are 97 regions at NUTS 1, 270 regions at NUTS 2, and 1,294 regions at NUTS 3 level. These regions are valid from 1 January 2012 until 31 December 2014.

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In the same period, the number of cities grew from 166 in 1975 to 364 in 2009. (Gonzlez, L., 2009, pp. 15).5 2) Capital agglomeration: since the adoption of the ISI model, capital tended to be concentrated in certain regions of the country. This trend continued with the NAFTA and other free trade agreements signed thereafter. FDI inflows were concentrated in manufacturing industries mainly in the north of the country. 3) Internal migration: the high migration rate from rural to urban areas has caused a labor shortage in rural areas, a situation that hinders the economic growth of rural regions. 4) Population growth vs. economic growth: according to INEGI, from 2000 to 2010, the population grew 15.2%. The World Bank indicates that the Mexican GPD grew 2.3% in the same period. This comparison shows the difficulties in tackling regional disparities due to poor economic performance coupled with high rates of population growth. 5) Constant economic crisis: an economic crisis affects the household income level and implies a contraction of public expenditures, which contributes to a higher degree of social backwardness. Mexico has had four economic crises in the last thirty years6, a situation that has not allowed economic stability hampering the execution of long- term polices. 4.2. Spatial Disparities: some indexes. In this section, a list of eight criteria is used to judge the spatial inequalities among Mexican states. GDP per capita is used to show the income disparities. GDP per state reveals the hyper concentration of economic activity. The share of population in poverty exposes the geographical location of poverty. Migration plays a role in regional gaps, probably enlarging them. The FDI inflows analysis makes plain that they are concentrated in only two cities. HDI shows that the inequalities have remained for the at least last ten years. Finally, the GINI index provides important information about the developed regions in relation with the least developed regions.

The criteria of cities definition used by Gonzlez, L., was based on Luis Unikels definition, who considers for the Mexican case, urban cities as those human settlements of 15,000 inhabitants or more. Nevertheless it is not the unique criteria, and at national level there is not an agreement about the methodology used to define the number and size of the Mexican cities: while the Consejo Nacional de Poblacin (National Population Council) uses the Unikels criteria, the Instituto Nacional de Estadstica y Geografa (National Institute of Statistics and Geography) uses its own criteria for cities identification, which are all the human settlements with 2,500 inhabitants or more. As seen both criterions are far different; also worth to note that both are governmental institutions; all this demonstrates the lack of common understandings for the urban planning. 6 Years of Mexican crisis since 1980: in 1982, 1995, 2001 and 2009.

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1) GDP per capita per state. GDP per capita displays the purchase power of the population. The index is showed here per state and within a time period, from 1970 to 1990, with the aim to make evident how the disparities within the country have become bigger in the lasts decades. The following graph, besides showing the variation of the GPD per capita per state, shows two trend lines: the white line shows the GDP per capita trend for 1970 and the black line shows the trend for 1999. Comparing the two lines, it can be observed that the variation in GDP per capita per state in 1999 tends to be bigger than it was in 1970. Graph 6. GDP per capita, 1970- 1999 (thousands of Mexican pesos of 2003).

Source: Secretaria de Desarrollo Social (SEDESOL), (2001), Programa Nacional de Desarrollo Urbano y Ordenacin del Territorio 2001- 2006, Mexico, pp. 46.

In China and India, the region with the highest GDP per capita is seven times higher compared to regions with lowest GDP per capita; in the United States this difference is about 23

only two and a half times and in Japan it is about only two times (EU Regional Policy, 2008c, pp. 4) According with information of INEGI for 2010 in Mexico the state with the highest GDP per capita (Campeche) is sixteen and a half times higher to the region with lowest GDP per capita (Chiapas). 2) Contribution to the national GDP. Regarding the contribution of each state to the national GDP, Distrito Federal (DF) and Mexico (Mx) together contributed 27% to the national GDP in 2009. The states with the lowest share, Tlaxcala (Tlax) and Colima (Col), together contributed only 1%. One fourth of the national GDP relies on only two states. On the one hand these percentages depend on the population distribution. This shows the hyper concentration of the economic activities in mainly two states: Distrito Federal (DF), with a great variety of specialized services and Mxico (Mx), which has an important industrial development. On the other hand, the huge differences in the national GDP participation could be related to the low productivity of states. Graph 7. National GDP distribution per state in %, 2009.

Source: Own elaboration with information from INEGI, (2011)

3) Poor population share. The Consejo Nacional de Evaluacin de la Poltica de Desarrollo Social (National Council for Evaluation of Social Development Policy) (CONEVAL), a Mexican governmental

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institution, has developed its own methodology for poverty measurement.7 CONEVALs results are used in the following figure, in which can be observed that Chiapas, in the south of the country, is the poorest state with 78% of its population living in poverty. The other side of the coin is Nuevo Leon, in the north, with a minor share of poverty, 21%. This simple example shows the trend in the socio- and geo- economic structures in Mexico. Graph 8. Population in poverty per state (% of each state population), 2010

Source: Own elaboration with information Consejo Nacional de Evaluacin de la Poltica de Desarrollo Social (CONEVAL), (2010a).

The poverty measurement includes the following variables: a) Current income per capita (monetary and non monetary income), b) Average educational backwardness in the home, c) Access to health care services, d) Quality and spaces of houses (considering the building material and housing spaces in terms of overcrowding) , e) Access to basic services in the housing (water, piping, energy and cooking fuel supply) Acces to nourishment, g) Degree of social cohesion (economic inequality through GINI index, social polarization and social networks)

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The three poorest states, Chiapas, Guerrero and Oaxaca, have their highest share of GDP in tertiary activities of the economy, mainly commerce. The main sector of employment, however, is agriculture. The three richest states, Nuevo Len, Coahuila and Distrito Federal, have their highest share of GDP in both secondary and tertiary activities, manufacturing and services. The following map helps to visualize the geographic location trend of poverty. Map 2. Distribution of population in poverty, 2010.

Source: CONEVAL, (2010a). Pobreza 2010; Porcentaje de la poblacin en pobreza segn entidad federativa, 2010.Estados Unidos Mexicanos.

4) Social Backwardness Index. The Social Backwardness Index was also developed by CONEVAL. It aggregates 11 variables8 related to education, health services, housing basic services and assets. The index ranks the states according to their degree of social backwardness in five categories: Very Low, Low, Medium, High and Very High.

The list of 11 indicators integrated in the Social Backwardness Index: 1) Percentage of illiterate population of 15 years or more. 2) Percentage of population aged from 6 to 14 years, who do not attend school. 3) Percentage of population of 15 years or more, with incomplete basic education, 4) Percentage of population without access to public health services, 5) Percentage of inhabited private houses with dirt floors, 6) Percentage of inhabited private houses that do not have toilet., 7) Percentage of inhabited private houses that do not have piped water, 8) Percentage of inhabited private houses that do not have drainage, 9) Percentage of inhabited private houses that do not have electrical energy, 10) Percentage of inhabited private houses that do not have washing machine, 11) Percentage of inhabited private houses that do not have refrigerator. This is not a poverty index because it does not include the income, social security and nourishment variables.

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The following map shows the classification of the Mexican states according to their degree of social backwardness for the year 2010. Again, this map shows that the straggler states are in the south of the country, and the more well-off states are in the north of the country. Map 3. Social Backwardness Index, 2010.

Degree of social backwardness

Very low Low Medium High Very high

Amount of states
9 7 6 7 3

Source: CONEVAL, (2010b), Degree of social backwardness at state level, 2010.

It is interesting to observe to what extent social backwardness has evolved in the last ten years. In the following table, Mexican states are classified in three blocks: 1) states in which social backwardness has increased, 2) states with the same degree of social backwardness and 3) states in which social backwardness has decreased. It is important to note that the first block of states represent 33% of the total population, the share of the population that has become worst-off in terms of social wealth in the last ten years. Only one state improved in the same period.

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Chart 5. Social Backwardness Index: evolution in ten years, 2000- 2010.

Degree of social backwardness State Colima Jalisco Tamaulipas Guanajuato Nayarit Quertaro Quintana Roo Sinaloa Veracruz Puebla Aguascalientes Baja California Coahuila Distrito Federal Nuevo Len Sonora Chiapas Guerrero Oaxaca Durango Morelos Tabasco Tlaxcala Zacatecas Baja California Sur Chihuahua Mxico Campeche Hidalgo Michoacn San Luis Potos Yucatn Year 2000 Low Low Low Medium Medium Medium Medium Medium Very High High Very Low Very Low Very Low Very Low Very Low Very Low Very High Very High Very High Medium Medium Medium Medium Medium Low Low Low High High High High Medium Year 2005 Very Low Low Very Low High Low Medium Medium Low High Very High Very Low Very Low Very Low Very Low Very Low Very Low Very High Very High Very High Medium Medium Medium Medium Medium Low Low Low High High High High High Year 2010 Very Low Very Low Very Low Medium Low Low Low Low High High Very Low Very Low Very Low Very Low Very Low Very Low Very High Very High Very High Medium Medium Medium Medium Medium Low Low Low High High High High High Decrease of social backwardness Remain the same degree of social backwardness Increase of social backwardness Evolution in ten years

Source: Own elaboration with information from CONEVAL, (2010b).

5) Internal migration. Internal migration, labor force mobility, is closely related to the economic growth and social development of the country and its regions. The following map shows the severity of outmigration per state. It can be seen that most of the states in the south suffer from a persistent out-migration.

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Map 4. Degree of states population outflows, 1995- 2008.

Source: OECD, (2011), Regions at a glance 2011, pp. 87.

According to the Consejo Nacional de Poblacin National (National Council of Population) (CONAPO) of Mexico, economic motivation is one of the main causes of the internal migration. This institution also observes that most of the out- migration flows go to the center due to the presence of specialized services and industrial poles, to the north due to the presence of assembly plants or to cross to the United States. 6) Foreign Direct Investment. It is considered that FDI is one of the most important drivers for development and growth, hence it is relevant how it is distributed. The following figure shows the unequal distribution of FDI among Mexican states. Within the period 1999 to 2011, only two cities received 67% of the total FDI: Distrito Federal and Nuevo Len, well-developed cities that together represented 25% of the national GDP for the year 2009. In this case, the states with lowest shares of FDI (less than 1%) are those in the red legend; most of them are in the south of the country, the same situation described in past figures.

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Graph 9. FDI distribution (% of the total FDI), 1999- 2011.

%
1% and less

Chiapas Hidalgo Colima 2% Tlaxcala Sinaloa 3% 4% Nayarit Aguascalientes Michoacn 5% Durango Quintana Roo

Oaxaca Guerrero Campeche Yucatn Tabasco Veracruz Morelos San Luis Potos Guanajuato Zacatecas Quertaro Sonora Puebla Baja California Mxico Distrito Federal

56% 5%

Baja California Sur Coahuila Tamaulipas Jalisco 11% Chihuahua Nuevo Len

Source: Own elaboration with information from SE, (2012).

7) Human Development Index. HDI aggregates variables of life expectancy at birth, mean years of schooling, expected years of schooling and Gross National Income per capita, it is very helpful in showing the degree of development in a multidimensional sense. The three lowest levels of HDI in Mexico are between 0.74 and 0.76 and belong to Chiapas (Chis), Oaxaca (Oax) and Guerrero (Gro), three of the poorest states in Mexico located in the south of the country. The two highest levels are 0.88 and 0.92 and belong to Nuevo Leon (NL) and Distrito Federal (DF). These states even exceed the national level of 0.83.

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Graph 10. HDI per state, 2010.

Source: Own elaboration with information from the United Nations Development Program (UNDP), (2011)

It is interesting, as well, how the HDI has evolved over ten years, to observe in how far the national policy has addressed the spatial disparities. In the following chart, states are grouped in three categories according to the change of place in the HDI national rank from 2000 to 2010: the place 1 is the state with the highest HDI and the 32 is the state with the lowest HDI. In yellow are the states that show a drop in place, in grey those states that have remained in the same place and in green the states that have ascended in the national rank. The states with the lowest and highest levels of HDI from Graph 6 are in the group of states which has remained in the same place in the national rank; hence, the biggest regional disparities have remained.

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Chart 6. HDI per state, 2000 and 2010 and the position variation in the national rank.

States Campeche Baja California Tlaxcala Quintana Roo Yucatn Nayarit Chihuahua Durango Mxico Distrito Federal Nuevo Len Tamaulipas Colima Puebla Hidalgo Veracruz Michoacn Gurrero Oaxaca Chiapas Coahuila Jalisco Sinaloa Tabasco San Luis Potos Sonora Morelos Guanajuato Baja California Sur Aguascalientes Quertaro Zacatecas

Human Development Index Ranking Ranking Year Year position position 2000 2010 2000 2010 0.83 9 0.83 15 0.85 3 0.85 8 0.77 23 0.80 26 0.83 7 0.85 9 0.78 19 0.81 21 0.78 22 0.81 24 0.84 4 0.86 5 0.80 15 0.83 16 0.79 17 0.82 18 0.90 1 0.92 1 0.85 2 0.88 2 0.82 11 0.84 11 0.81 12 0.84 12 0.77 25 0.81 25 0.76 27 0.80 27 0.75 28 0.79 28 0.75 29 0.79 29 0.73 30 0.77 30 0.72 31 0.76 31 0.71 32 0.75 32 0.83 5 0.86 4 0.81 14 0.83 13 0.79 18 0.83 17 0.78 20 0.82 19 0.78 21 0.81 20 0.83 8 0.86 6 0.79 16 0.83 14 0.77 24 0.81 22 0.83 6 0.87 3 0.83 10 0.85 7 0.81 13 0.84 10 0.76 26 0.81 23

Variation in Evolution in 10 relative years position of HDI 2000-2010 -6 -5 -3 -2 Decline in the -2 national rank -2 -1 -1 -1 0 0 0 0 Remain in the 0 same position in 0 the national 0 rank 0 0 0 0 1 1 1 1 1 Rise in the 2 national rank 2 2 3 3 3 3

Source: Own elaboration with information from UNDP, (2012).

8) Gini Index. The Gini Index as a measure of income concentration is used here to show the inequality in income per capita per state in Mexico. This index, unlike the other indexes used, shows that Distrito Federal and Nuevo Leon are not as good, meaning that its index is closer to one than to zero. Distrito Federal (Gini of 0.52) and Nuevo Len (Gini of 0.50) have a very similar value to the state with the worst Gini Index, Chiapas (0.54). Hence, the states with better economic performance in terms of GDP per capita and that contribute more to the national 32

GDP are close in terms of inequality to the state with the worst performance in all indexes, Chiapas. Graph 11. GINI Index of per capita income per state, 2010.

Source: Own elaboration with information from CONEVAL, (2010c).

Concentration of population, economic activity and FDI in Distrito Federal and Nuevo Leon has neither lead to a better distribution of income nor to a higher development level. The most important lesson of GINI index for Mexico is that besides the remaining spatial inequalities, economic wealth is concentrated in a low share of the population and in certain economic sectors and geographic regions. In Mexico, there are huge inequalities among the states, but there are also huge inequalities inside the states.

5. Mexican regional development policy 5.1. Regional development policy. 2001- 2012.

The last section made evident the severe inequalities among states, which are relevant for the countrys economic performance and for regional development policies addressing those inequalities. In this section, the strengths and weaknesses of the Mexican regional policy from the last ten years are identified, analyzed and commented on. Examined are official documents: the Plan Nacional de Desarrollo (National Development Plan) (NDP) of two periods and the Programa Nacional de Desarrollo Urbano y Ordenacin del Territorio (Program of Urban Development and Land Planning) (PNDU- OT), as well the institutional structures of the Secretara de Desarrollo Social (Social Development Secretariat) (SEDESOL), where regional policy is developed. 33

In 1997, the OECD recognized in its report Regional Development and Structural Policy in Mexico the total absence of a regional policy in Mexico. Since then, two big steps have been taken towards structuring a regional policy. First, five mesoregions, were defined in 2001. Second, five trust funds, one for each mesoregion, were created. These two important actions mark the point of departure for the analysis presented. Despite these advancements, there are weak aspects of the incipient regional policy. The gaps found that will be deeply commented later in this chapter are briefly listed here: a) Lack of legal basis b) Lack of a common organizational frame for trust funds c) Weak decision making process d) Lack of regional budgets e) Weak resources allocation processes f) Lack of transparency in funds management g) Lack of programs per period defining concrete and pragmatic goals to be achieved h) Lack of continuity of regional projects i) j) Lack of an integral regional vision Lack of communication among and within mesoregions

k) Lack of projects monitoring 5.2. Two National Development Plans.

The NDP is the official document presented by the President at the beginning of each presidential period, and it establishes the national policies and strategies to be followed during the corresponding period. It defines the guidelines for the objectives and governmental tasks of the Executive Power. Since 2001, there have been two presidential periods, hence two NDPs (first period: from 2001 to 2006, second period: from 2007- 2012). These programs reflect the Mexican governments political approach to the regional development topic. Early in the year 2001, the government increased its interest in regional policy. The NDP of the first period makes two important contributions to regional policy: the establishment of five mesoregions and the creation of five trust funds. For the NDP of the second period (2007- 2012) the government lost its interest for regional development. In this official document there is not one section devoted to regional policy.

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This topic is poorly covered throughout the document, and this NDP does not make any specific proposal. There are common statements in the NDPs of both periods. There is an open admission of the current regional disparities, of the huge migration from rural to urban areas and that the gap between regions has become bigger in the lasts years. They recognize the imbalances within regions in GDP per capita terms, the low productivity in the regions that are lagged behind and the insufficient infrastructure in these regions. Moreover, the importance of the big cities as development poles is declared in both documents. Despite these recognitions, the strategies proposed in the NDP of the period 2001- 2006 are not strong policies with an integral regional vision, inclusive of urban, main cities, and rural areas; neither strategies nor programs were outlined. Finally, in both documents, the approach to regional development is overshadowed by urban development, by the regulation of large cities as the central axis of a regional dynamism. 5.3. Mesoregions and trust funds.

The five mesoregions defined in 2001 can be considered merely a geographic definition of boundaries which group two or more states into a common territorial delimitationMap 5. Mexican mesoregions, 2001.9

Northwest Mesoregion Northeast Mesoregion Central- Western Mesoregion Central Mesoregion South- Southeast Mesoregion

Source: Gobierno de los Estados Unidos Mexicanos, Presidencia de la Repblica, (2001). Plan Nacional de Desarrollo 2001- 2006, pp.10
9

The states of each mesoregion: 1) Northwest Mesoregion: Baja California, Baja California Sur, Sonora, Sinaloa, Chihuahua y Durango. 2) Northeast Mesoregion: Tamaulipas, Nuevo Len, Coahuila, Chihuahua y Durango. 3) Central- Western Mesoregion: Jalisco, Michoacn, Colima, Aguascalientes, Nayarit, Zacatecas, San Luis Potos, Guanajuato y Quertaro. 4) Central Mesoregion: Distrito Federal, Quertaro, Hidalgo, Tlaxcala, Puebla, Morelos, Mxico. 5) South- Southeast Mesoregion: Campeche, Yucatn, Chiapas, Oaxaca, Quintana Roo, Tabasco, Guerrero, Veracruz y Puebla.

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The creation of the mesoregions, besides the geographical delimitation, meant a common forum for the state members. Nevertheless, clear objectives, programs to be followed, operational processes and communication channels inside the mesoregions and between them were never defined. The mesoregions do not have any administrative or legal powers. There is no legal basis governing processes and structures, the geographic and administrative configuration, the internal negotiations among states members or the negotiation among mesoregions. In addition, in December 2001 five trust funds were created, one for each mesoregion. Their aim was the resource management for projects supporting regional development. Currently, four of the five trust funds are active. Only the Northwest mesoregion does not have any activity, and its trust fund was dissolved because none of the members is interested in supporting common projects. Nevertheless, the four active trust funds, face many limitations in their organization, decision making process and resources allocation. Regarding their organizational structure, roughly speaking, each one consists of representatives of the local governments and a representative of the federal government through SEDESOL. Additionally, there are technical councils composed of workgroups by sector (agriculture, economy, industry, infrastructure, education, etc.). The local governments of the states and the federation co- operate to choose the projects to be executed. Nevertheless, the organization of each trust fund can vary. There is no compulsory organizational structure to be accomplished, and they do not have a common administrative structure. Concerning the decision making process, the regional development projects are presented by the state members of the mesoregions to SEDESOL, who takes the final decision on which projects will be executed and to which projects monetary resources will be provided. It is important to highlight that in the national budget there is no a specific item for the trust funds. Despite this fact, there is a very simple process for resource collection and allocation. Each state, by its own means of money collection and administration, contributes to the trust fund to which they belong, and the federal government complements the funds collected by the states. Federal contributions may consist of subsidies and direct transfers. This process is a common agreement between all the stakeholders involved, but there is no specification regarding the proportion of money contributions by the states and federal governments. 36

It is crucial to point out that there is neither an obligation backed by law that ensures the participation of states in the trust funds, nor a coercive nature of the commitments acquired by the state when planning a development project. The states can abandon the projects and the trust funds at any time. In pragmatic terms, the trust funds are economic figures that concentrate the monetary resources from the federation and from the states, which gives certain cohesion to the mesoregions as money containers, so to speak. But neither the mesoregion nor the trust funds structures are deeply developed or detailed. The trust funds and the projects financed through them result only when the wills of the states come together. Moreover, as the direct communication among states is not allowed in legal terms, when one state communicates with another state, the presence of a representative of the federal government is always required. The trust funds become a platform for dialogue between states. In this sense, the trust funds serve as a communication tool. The result of these deficiencies is that currently mesoregions are purely a geographical figure and the trust funds a weak economic instrument, both without legal power. There is no cohesion mechanism; hence, their functioning depends on the will of the states. 5.4. Regional Development Unit.

In 2001, at the time of the mesoregions and trust funds creation, a specific office devoted to regional development was created as well. At the beginning, it was under the direct responsibility of the president, but as of 2007 this office was moved to SEDESOL with the name of Unidad de Desarrollo Regional (Regional Development Unit) (UDR). This change reflects a decrease in terms of power and decision making, and the reduction of importance of the regional development topic in the national policies. The current attributions and objectives of this office are explained in this section. Currently the objectives of the UDR are the reduction of regional disparities and policy articulation that enables economic growth and regional development. The primary means to achieve these is the coordination of the governmental institutions and their policies at the horizontal level (inter- secretariat coordination) and the vertical level (coordination of states and federal government). At the horizontal level are the eighteen governmental secretariats, which are defined by sectors: education, health, security, tourism, 37 economy, communications, finances,

agriculture, among others. Each of them has their own policies, programs and projects, and the UDR articulates programs from the different secretariats when they involve two or more states. At the vertical level are the 32 local governments of the states and the federal government. The Organic Law of Public Federal Administration of Mexico specifies that local governments cannot speak directly to each other, then UDR coordinates the communication between the states within the mesoregions and the federation whenever two or more local governments want to execute a regional project. The following diagram explains the coordination scheme. Diagram 1. Regional Development: policy coordination.

Source: Own elaboration with information from the interview to Jos Manuel Zevallos, from Unidad de Desarrollo Regional, SEDESOL, 23 May 2012.

The UDR administrates the four currently functioning trust funds. The trust funds decide independently which projects they want to support, and the UDR votes for the execution or not of the proposed projects, by the analysis and evaluation of projects to asses if they really would have a regional impact. In other words, the benefits of the projects supported from mesoregions should not have an impact on only one state. In order to estimate the regional impact, ex- ante and ex- post of the regional projects, the UDR is currently constructing its own Index of Regional Capacities, which is not used yet, as indicated by the Subdirector of the UDR, Jos Manuel Zevallos, in an interview in May 2012. In the same interview, the Subdirector mentions that the development priorities of mesoregions and the priorities of the federal government can differ. The mesoregions, when defining their development priorities, are more sensitive regarding the real requirements of 38

the region. It can also happen, however, that the states, through the mesoregion to which they belong, propose projects without regional impact. Sometimes the decision whether projects will be financially supported or wait-listed is a matter of political power and interests of the local governments and of the federal government. These situations are likely to provoke confrontations between the involved governments and are the result of the lack of a particular and individual program for regional development, the lack of a law that rules it in its structure, activities and financing, and of a weak institution with very poor attributes. In addition, the actions of the UDR have a special focus in urban development with the political principle of strengthening the urban areas, the cities being the nucleus of the region. In theory, regional development is pushed from inside to outside, from urban to rural areas. This in turn means that within regions there is not equal interrelation among towns, cities, and states. The region means first the cities within the mesoregion and then the outlying areas. Concerning monitoring processes, the UDR does not have a monitoring system for the regional impact of the projects executed. They use the macroeconomic and other standard indicators, such as some used in the section of spatial disparities of this work, to look into the general development achievements. 5.5. Program of Urban Development and Land Planning.

The Program of Urban Development and Land Planning 2001- 2006 (PNDU- OT) deepened the proposals of the NDP of the first period, integrating territorial or land planning, urban and regional development. This program was issued by SEDESOL in 2001 and intended to create the guidelines for territorial, urban and regional development to be followed from that year on. Even though the program planned to end in 2006 and then be reworked, the original program is still valid; the reworking of the program never occurred. This situation well reflects the low priority of the topic within the national policies. Through the PNDU- OT, three policies were established, which are mainly focused on urban areas but mention some little aspects of regional development.

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1. Soil and land reservation policy. Objectives: integrate land suitable for urban development, meet the requirements for housing, identify current and future demand for land, and identify potential urban land for the location of various urban activities. 2. Urban and regional development policy. Objectives: urban planning and

management, strengthen governance and city management, improve urban infrastructure and public services provision, address the urban periphery and marginalized areas 3. Land planning policy. Objectives: spatial orientation of the development, planning and territory forecasting, strengthen the process of the urban and regional planning and management, articulate regional actors. In the second policy, regional space is seen as the urban periphery and marginalized areas, while the third policy has a territorial approach. Regional development and all its implications are not seen as relevant subjects of specific objectives. As part of the Land planning policy, the creation of two regional funds was contemplated: the structural and compensatory funds. In theory, the first fund was to be assigned to already developed and dynamic regions and in regions with development potential. The compensatory fund was planned to address the most backward regions, the less dynamic regions and regions in economic fall. Its creation was inspired by the Structural Funds of the EU. They were never created. Even though it pretends to have an integral view, this program emphasizes the urban and land planning aspects, subordinating the regional development to them. Just some little issues regarding regional development are covered. In the following diagram, it can be observed that the PNDU- OT contains mainly strategies related to urban development and land planning topics. Some of the issues regarding the regional development are included, but they are not deeply developed and no clear and pragmatic strategy is established. The regional development policies are superficially touched upon.

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Diagram 2. The three topics addressed by the PNDU- OT, 2001- 2006.

Source: Source: Own elaboration with information from the interview to Jos Manuel Zevallos, from Unidad de Desarrollo Regional, SEDESOL, 23 May 2012.

The program represents the federal view, which has the same approach to urban, territorial and regional development topics. The document is primarily centered on urban development. The cities are seen as the main locations of growth factors, as dynamic poles for growth and development. It considers that the impact of globalization of cities has been changing the structure of employment, with a demographic impact in the cities. Hence, they are the priority in the national policy. As a result of this conception, the strategy of the PNDU- OT is strengthening the main cities of the country as means to internal market reinforcement. The federal governments conception is that since Mexico is a predominantly urban country, the urban spaces should have major weight in public policies. The cities have the highest importance in the policy setting. Regional development policy is defined under this vision. The program finds two main functions of the cities [] the material and organizational support of productive, social and cultural activities. (PNDU- OT, 2001, pp. 26) [] the space through which the development can be incorporated to vast regions of the country which are in conditions of marginalization and poverty. (PNDU- OT, 2001, pp. 26) The second function is relevant for regional development. Following its logic, cities have the function of diminishing regional disparities by being a platform for the poor areas integration into development.

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The program states that the current policies follow the scope of the OECD on market economies, where the state intervention for the integration of marginalized, rural and spread areas, should be fully justified (PNDU- OT, 2001, pp. 30). It explains that that the mechanism of integration and diffusion of development benefits from cities to lagging areas will be done by the market forces. For the identification of the main cities, the Mexican government created the National Urban System. The cities classification criteria are according to population thresholds. The smallest cities are considered those human settlements with 15,000 inhabitants or more. The system was created to understand the urban spaces where the development priorities are focused. In this system, urban development is conceived as equipping the cities with public services such as water and energy supply, urban infrastructure and land use management, and is the responsibility of federal and local governments. Map 6. National Urban System: Mexican cities, 2005.

National Urban System, 2005 15 thousand to 49.9 thousand inhabitants 50 thousand to 99.9 thousand inhabitants 100 thousand to 499.9 thousand inhabitants 500 thousand to 999.9 thousand inhabitants 1 million to 10 millions inhabitants 10 millions inhabitants or more

Number of cities 229 40 60 20 8 1

Source: Gonzlez, L. (2009), El papel de las ciudades en el desarrollo regional, in La situacin demogrfica de Mxico 2009, Mxico: Consejo Nacional de Poblacin, pp. 75.

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The current policy privileges the capital agglomeration in cities. The real problem regarding the regional inequalities comes when these economic concentrations are not deeply linked to the spread areas or to their nearest influence areas. Usually, the biggest urban areas turn abroad due to international trade. Cities are the core of development and economic growth, and rural areas would benefit from the flows of productive factors. However, the figures of the spatial disparities section show that the relationships among the urban, rural spaces and marginalized areas hinder the spread of the benefits resulting from the city-strengthening policies. The flows of productive factors do exist, but they are mainly from rural to urban areas. The main industries are established in major cities, and there is no technology transfer to less industrialized areas. Financial flows to rural areas come mostly from remittances and are used for consumption and not for investment. Finally, the labor force migrates from rural to urban areas, as demonstrated by the indexes in the spatial disparities section. The following words reflect perfectly the approach of the PNDU- OT to the urban development and land planning: [] the territory, its resource endowment, its morphology and, especially, its management, are key determinants of growth. The efficient administration of the territory is at present a major competitive advantage of nations. (PNDU- OT, 2001, pp. 32) According to the program conception, the territory is the new paradigm of development. This paradigm is in practice land planning, which assumes the spatial, geographic and demographic administration of the economy and its implications in society. The program, as part of the new territorial approach, alludes to the exploitation of territories according to their comparative advantage, natural resource endowment and human settlements. In this regard, it is worth mentioning that trade liberalization came so abruptly without providing the necessary factors to boost competitiveness in lagged regions, making even more difficult for them to catch up with more developed areas, in this case, the cities. In this sense, the economic activity lacks of a regional integration that allows lagged regions to enhance their competitiveness, to reduce their production costs and to strengthen their local markets. Summarizing the vision of the PNDU- OT that includes superficially some topics related to regional development, the vision of the federal government concerning urban, territorial and 43

regional development is, in praxis, the territorial reserve management, equipping of urban areas, housing and addressing urban poverty. It is necessary for a truly integrated policy to include urban, territorial and regional development, giving the necessary weight to specific objectives, programs and projects, and providing the necessary budget to execute them. Also essential is governmental support to boost regional competitiveness.

6. Conclusions. The purpose of the present paper was to identify the particular features of Mexico in the national and international contexts, to recognize the growth strategies of the last decades and to display some of the causes of the regional disparities. Two additional goals were to present the international trends in regional policy as shown through OECD statements and to exemplify the EU regional policy as a clearly defined regional policy. Finally, the last chapter distinguished the Mexican trends in regional policies. All of these points considered, this final part mentions very concretely the most relevant findings. Then, some comments about policy advocacy and suggestions that could improve Mexican regional policy are made. Regarding theoretical aspects, there is no a common understanding for regionalization, if homogeneous or heterogeneous features should be taken into account. In the end, there is no a blueprint, and it depends on the countries particular features and the political scope. In the study of regional policies it is difficult to escape the current debate of to what extent the governments should intervene in the economy, which are the government actions or policies to incentivize economic growth of regions, and if this last is a task of the government or of market forces. The evidence of persisting regional disparities challenges both perspectives. In the international context there is no outline for regional policies. While some countries address their efforts and resources towards lagged regions, others have an all- regions scope. In the overall performance of the Mexican economy, this research shows that one of the most severe problems to be tackled is income distribution. Even though Mexico has a high 44

HDI, its Gini Index reveals unequal income distribution. To address inequalities among and inside regions, Mexican regional policy should be strongly linked to income distribution policies. Trade liberalization with a weak economy caused rapid change with serious effects, since the lagged regions did not have the means to reach the competitiveness that the international markets demand, causing these regional economies to be less competitive. In the Mexican regional context, it is clear that although that Mexico experienced drastic changes in its growth strategies at the end of the last century, regional inequalities remained. It deserves to be mentioned that regional policy in Mexico began to be supported in 2001 with the creation of mesoregions and trust funds, which has been the most relevant event in the regional policy. Nevertheless, it is still at an early stage of gestation; the five mesoregions and the trust funds are tools that do not have clear lines of action. There is not a single program for the definition of objectives. Indeed, their major attribution is the government coordination at the horizontal and vertical levels, a very reduced field of action. After 2001, there was no continuity in the policy structuring. The result today is that the trust funds are the voluntary association of the states, each with its own vision, priorities, objectives, which could lead to a discontinuity of states interests. The section about spatial disparities demonstrated the geographical location of inequalities. The trend of the poor south and the rich north is very clear. The development of the regions depends on their own savings and investment capacity, nevertheless it is necessary that the State instruments for resources collection and overall for their channeling towards the poorest regions and with less infrastructure, to compensate somehow, the current trend of FDI concentration in the most dynamic regions. One of the major issues of the Mexican regional policy is that regional development has been understood through the urban development perspective. This situation can be considered a consequence of the ISI policy, a period during which the cities grew rapidly, increasing the state's interest for urban development. The low degree of policy adaptability has caused the regional development policies to be subordinated to urban development policies. The current policy of strengthening cities probably increases the trend of the labor force concentration in the main cities and of the more productive economic activities. These factors 45

might promote the already-developed cities growth, while the spread and rural areas lag behind even more, causing regional disparities to remain or even increase. Mexican regional policy is merely governmental coordination; a very limited vision for the real challenges of a country with huge regional disparities. Finally, Mexican regional policy covers only the urban sector. The lack of a comprehensive vision for regional development is leaving out the rural sector. The contribution of this research is to state, in the following paragraphs, how the weak features can be overcome. Mexican regional policy has had the same approach since the 1970s. The government should prioritize the evolution of the regional approach towards a policy able to deal with the economic, demographic and social challenges occurring in the regions as an effect of globalization. Given the weak attributions of the regional policy, the creation of a political power that coordinates the regional synergies according to common objectives looking to improve productivity and taking into account the particular features of each region can thus be suggested. Following the EU Cohesion Policy features, the Mexican government should structure a more inclusive regional policy, involving private sector, non- governmental organizations, trade unions, civil society, academics and other stakeholders. The policy should extend the spectrum of social, cultural, economic growth, innovation, technology, research and development, education and gender equality projects. Finally, it should unify in a single policy the urban and rural sectors. Regional policy cannot remain subordinated to urban development policies. The results of this research reveal the need for a strong regional policy due to the regional disparities, to the technical and administrative capability differences of the local governments, to the broad variety of natural resources, to a multi- ethnic society, to the multiple productive economic activities, and to all the regional peculiarities. This requires different types of polices and incentives and not a common national policy.

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In this sense, the Mexican government should increase the influence of the current Regional Development Unit or should create and agency for regional development. This could create potential benefits. First of all, this agency could be a supra-, state- and sub- federal administrative figure, an intermediate level of government between the states and the federation. This currently does not exist, so it would be an innovation in the public administration organization. The creation of such an agency would require the states to transfer powers to this new level of government. Mesoregions would be ascribed to this mesolevel agency, as a central figure to aggregate information regarding the regions performance, stakeholders interests and resources. Regarding the money collection for the trust funds, it is essential to define an item in the federal budget for regional policy, which can be complemented with contributions of the states through a cooperation scheme with fixed quotas for states according to its GDP. The proportions of federation and states contributions should be defined for the case of each mesoregion. As mentioned before, each mesoregion has its own features, and there are different competitive levels among them. oriented system. Furthermore, the agency would be the responsible for the design of multi- annual programs, defining clear objectives, ex- post monitoring strategies for projects and commitment mechanisms for the states, all these with a comprehensive vision to identify the priority areas. In addition, it would create communication channels between the states of each mesoregion, and among mesoregions. Additionally, the agency should look for international cooperation for regional development and as well cooperation between the regions in projects of common interest. Also, the agency should establish transparent processes of resources allocation. In this way, the resources can be allocated under a results

Moreover, research should be focused towards the identification of the specific features of each mesoregion in order to distinguish the local factors that should be enhanced. Mexican regional policy requires research about the interconnectivity of regions, cities, urban- rural areas and the functional links between them, which would be helpful for policy makers in deciding which areas should be incentivized in order to call the capital, for the dispersion of knowledge, for research and development collaboration and for private and public sector 47

cooperation. More research is needed for a better understanding of the five mesoregions dynamics, their strengths, their weaknesses, their economic potentialities. Future studies are needed to identify which are the key sectors that should be prioritized in the regional development agenda, which are the accurate reforms needed to enforce regional policies in the Mexican context (tax reforms, creation of the regional development agency, regional growth strategies, etc.) International cooperation for regional development policies is a topic in which the government should also focus their efforts. Also important is to recognize the macroeconomic and microeconomic perspectives of regional development and to build a complementarity directed exclusively towards regional development. The importance of Mexican regional policy should be redefined, growth strategies should be reoriented beyond of sectoral policies; giving the regions a greater weight than they currently have in the national priorities.

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Interview. Interview with Jos Manuel Zevallos, Subdirector de la Unidad de Desarrollo Regional, Secretara de Desarrollo Social, mail: jose.zeballos@sedesol.gob.mx; Mxico, 23 May 2012

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Appendix 1. Mexican states abbreviation. Abbreviation Ags BC BCS Camp Chis Chih Coah Col DF Dgo Gto Gro Hgo Jal Mx Mich Mor Nay NL Oax Pue Qro Qroo SLP Sin Son Tab Tamps Tlax Ver Yuc Zac Name of the state Aguascalientes Baja California Baja California Sur Campeche Chiapas Chihuahua Coahuila Colima Distrito Federal Durango Guanajuato Guerrero Hidalgo Jalisco Mxico Michoacn Morelos Nayarit Nuevo Len Oaxaca Puebla Quertaro Quintana Roo San Luis Potos Sinaloa Sonora Tabasco Tamaulipas Tlaxcala Veracruz Yucatn Zacatecas

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Appendix 2. List of figures Graphs Graph 1 Graph 2 Graph 3 Graph 4 Graph 5 Graph 6 Graph 7 Graph 8 Graph 9 Graph 10 Graph 11 Maps Map 1 Map 2 Map 3 Map 4 Map 5 Map 6 Charts Chart 1 Chart 2 Chart 3 Chart 4 Chart 5 Chart 6 Diagrams Diagram 1 Diagram 2 Regional Development Unit: policy coordination ........................................... 38 The three topics addressed by the PNDU- OT, 2001- 2006 .......................... 41 Paradigm shift of regional development policy ............................................... 15 EU regional policy program 2007-2013: funds, projects and objectives ........ 18 EU regional policy objectives from four program periods ............................... 19 Structural funds: % of the EU budget, and the % to Objective 1 ................... 20 Social Backwardness Index: evolution in ten years, 2000- 2010 .................... 28 HDI per state,2000 and 2010 and the position variation in the national rank 32 Political division of Mexico and population per state, 2010 .............................. 3 Distribution of population in poverty, 2010 ...................................................... 26 Social Backwardness Index, 2010 .................................................................. 27 Degree of states population outflows, 1995- 2008 ......................................... 29 Mexican mesoregions, 2001 .......................................................................... 35 National Urban System: Mexican cities, 2005 ............................................... 42 Gini Index of inequality of GDP per worker. (OECD member countries) .......... 5 FDI inflows to Mexico by sector (millions of US dollars). 1980- 2011 .............. 6 FDI inflows to Mexico from USA, 1980- 2011 (% of the total annual FDI) ........ 8 Main export markets in Mexico, 2010 (% of the total) ....................................... 9 GDP growth in %, 1961- 2010 .......................................................................... 9 GDP per capita, 1970- 1999 (thousands of Mexican pesos of 2003) ............ 23 National GDP distribution per state in %, 2009 .............................................. 24 Population in poverty per state (% of each state population), 2010 ............... 25 FDI distribution (% of the total FDI), 1999- 2011 ............................................ 30 HDI per state, 2010 ........................................................................................ 31 GINI Index of per capita income per state, 2010 ........................................... 33

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