Political Economy Analysis of Averting the Resource Curse: Mexico Case Study Alberto Diaz Cayeros Center for US - Mexico Studies IR/PS, University of California, San Diego Prepared for the Workshop “Myths and Realities of Commodity Dependence”, Washington, DC, September 16-17 2009
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Political Economy Analysis ofAverting the Resource Curse:
Mexico Case Study
Alberto Diaz CayerosCenter for US - Mexico Studies
IR/PS, University of California, San Diego
Prepared for the Workshop “Myths and Realities of CommodityDependence”, Washington, DC, September 16-17 2009
Four Interrelated Findings
• Mexican proven oil reserves not fixed: – international price of oil– availability of extraction technologies– skills of engineers and technicians– managerial culture of PEMEX– relationship with the oil workers union– fiscal regime and regulatory framework
Interrelated findings cont’d
• Value chain– Bilateral bargaining in royalties– Soft budget constraint– Investment shortfalls
• Role of oil rents– relationship between state governors and the
federal executive– redistributive role of federal expenditure
• Counterfactual in mining
Mexican commodity booms
• Highly diversified national economy• Highly diversified export platform, especially since
NAFTA• Commodity dependence only in specific regions• Monopolistic structures in both private and public
sector enterprises in extractive industries– PEMEX– Grupo Mexico– Peñoles– CEMEX
• Tax revenue: high oil dependence
Commodity production is not simplya natural endowment
• Wright (1990) asks “whether resource abundance reflectedgeological endowment or greater exploitation of geologicalpotential”
• Sachs and Warner (1995) argue that “economies withabundant natural resources have tended to grow less rapidlythan natural-resource-scarce economies.”
• US Economic History:– Geological surveys and public knowledge (USGS founded in
1879)– University training in management– “Ethos of exploration”– Endogenous incentives and tax lobbying
• Link to political regime: Karl (1987, 1997), Ross (2001), Haberand Menaldo (2008), Dunning (2008)
OIL AND GAS
Natural Endowments in Oil
PEMEX production has declined,so earnings were kept by the price
boom
Potential oil and gas production inMexico (statistical expected values)
14.7 billion barrels proven oil reserves in 2008The Chicontepec Basin has been certified to have 17.7 billion barrels
Known since 1913, but technological hurdle: requires drilling 16,000wells, due to low permeability (PEMEX has 5000 wells in operation)
Geologic Regions Oil Gas Natural Gas
(Mill Barrels) (Billion Cubic ft) (Mill Barrels)
Tampico-Misantla Basin 893 2,051 119
Veracruz Basin 955 5,832 288
Saline-Comalcalco Basin 7,018 16,423 895
Villahermosa Uplift 7,436 15,623 918
Campeche-Sigsbe Salt Basin 2,478 5,565 309
Yucatan Platform 754 1,496 89
Sierra Madre de Chipas-Peten Foldbelt 890 1,846 110
Fiscal Dependence on OilUnderperforming Revenue Yield
MINING
Humboldt map of New Spain
Mining activity (silver) in 1800
Silver mining activity in 2009
Overall mining activity in 2009
Mineral commodity boom enjoyedby private sector
Industrial structure of Mexicanextractive industry firms
Share of TotalCapacity
Main Firm EffectiveNumber ofCompaniesCement 62.6% CEMEX 2.21
ARTÍCULO 263. Los titulares de concesiones y asignaciones mineras pagaránsemestralmente por cada hectárea o fracción concesionada o asignada, elderecho sobre minería, de acuerdo con las siguientes cuotas:
Concesiones y asignaciones mineras Cuota por hectáreaI. Durante el primer y segundo año de vigencia. $ 4.42II. Durante el tercero y cuarto año de vigencia. $ 6.61III. Durante el quinto y sexto año de vigencia. $ 13.68IV. Durante el séptimo y octavo año de vigencia. $ 27.51V. Durante el noveno y décimo año de vigencia. $ 55.01VI. A partir del décimo primer año de vigencia. $ 96.83
POLITICAL ECONOMY
Political economy• Patronage networks financed by oil