Question

How can the neoclassical growth model explain the economy in Mexico?

Answer 1

According to Neoclassical growth theory technology has a major influence on an economy and its growth. Neoclassical growth model explains three factors are labor, capital, and technology. Neoclassical growth framework based on relationship between output (Q), the inputs capital (K) and labor (L), and technology (A): that is Q = F(K ,L ,A ).
During worldwide Great Depression growth of Mexico was stopped. After that growth of economy in Mexico was driven by urbanization, industrialization, and education. Mexican government encouraged foreign investment private investment was destined to the purchase of imported machinery and equipment. In this sense, there was substantial technology adoption from abroad in that period. Mexico spends large amount of capital on economic infrastructure, communication, transportation sector, technological sector as a strategy to enhance its economy. According to the feature of the neoclassical growth model in a balanced growth path, as technological growth occurs, households could save as to keep the capital-output ratio constant, increases in output per worker as a function of variables that include capital per worker, typically find increases in TFP and increases in capital roughly equally important in accounting for growth. Mexico delivers quality infrastructure better than half of the countries worldwide. Mexico is not experiencing the rapid catch-up growth as its economy still depends far more on agriculture.