I. Introduction
The decentralization of public infrastructure from the federal to state
governments in Mexico will likely represent a change in the pattern of
investments. That is, not only will local expenditures improve their match
to local prefe rences, but we will also observe a change in the mix between
social and productive public investments, given that state and federal
priorities differ.
The current process of decentralization of expenditure functions to
local governments is perceived as positive in Mexico. Recently half of
the federal funds available for social and regional development were decentralized
to local level s. The authorities at these levels have different preferences
regarding the use of these funds, which preferences respond to the demands
of their respective constituencies. They also face different environments
requiring different approaches. We should th erefore expect a change in
the pattern of public investments.
Particularly in the poor state of Oaxaca, we expect a reduction in those
investments directly aimed at poverty reduction and income redistribution
(also called income-sustaining policies), and an increase in those intended
to increase b usiness activity. In the current situation, Oaxaca receives
more than its share of social investments and less of productive investments.
This could be worrisome since this state has a very high degree of poverty.
As redistribution is a federal concern, t he federal government could choose
to stop or even reverse the decentralization process.
However, the change in the pattern of investments associated with decentralization
does not have to increase poverty levels, for there is an efficiency gain
that generates more economic activity. In an effort to collect more taxes,
the local government builds infrastructure to attract private investment,
which is not encouraged by social investments. Also, the local level is
better suited to identify the comparative advantage of the region. In the
context of the global economy, states c ompete with foreign governments,
not only local ones. As local levels direct public funds toward more productive
investments, concern about too much competition among Mexican states should
be reduced given the greater risk of losing business with foreign governments.
On the other hand, the people of Oaxaca demand attention to their basic
needs. They require education, food, water, health services, and sanitation.
The ability of governments to solve social problems has determined their
success and ev en their stability. The current administration is conscious
of the necessary role that an educated and healthy population play for
an otherwise productive project to succeed.
The next section presents a brief and general picture of the region
as a background. Section three describes the reasons for the change in
the pattern of investments. The fourth section argues that decentralization
has an efficiency gai n that generates more economic activity. The differences
between the state and federal level can be appreciated by looking at the
patterns of federal investment and the state government development plan,
which is the object of the fifth section. Then we a nalyze the development
strategy proposed by the state government.
II. Background: Oaxaca
Oaxaca, located on the southern Pacific coast, is bounded on the north
by the states of Puebla and Veracruz, on the South by the Pacific Ocean,
and on the east by Chiapas. It includes most of the Isthmus of Tehuantepec
on its Pacifi c side. It has an area of 95,364 square kilometers (59,258
square miles), about 4.84% of the national territory.
The State of Oaxaca has 3,019,560 inhabitants, about 3.7% of
Mexico’s total population. It is the tenth most populated state in the
country, with an annual average population growth of 2.04%.
The state is largely populated by Zapotec and Mixtec Indians, who have
retained their own languages and traditions. Two thirds of the population
belong to indigenous communities.
Oaxaca is divided into 570 municipios (municipalities), a quarter of
the national total. Most of its population (69%) is disseminated, living
in communities with less than 5,000 inhabitants.
Oaxaca has the second highest rate of poverty with a 2.05 measurement
(figure 1), which corresponds to a very high degree of poverty. Over 46%
of the municipalities have a high degree of poverty; 30% of the municipalities
live under a v ery high degree. About 15% have a medium degree; approximately
9% a low level and only 4 municipalities in the state have a very low degree
of poverty (figure 2).
Economic Activity and Development
This state generates only 1.7% of the national GDP. Its GDP per
capita in 1990 was 3,947 pesos (1,227 usd). Over three quarters of the
labor force (78.73%) earned less than twice the minimum wage.
Oaxaca has a very important agricultural sector. It produces 4.5% of
the national primary sector’s national GDP, but with very low productivity
as it employs 7.5% of the sector’s workers. A wide variety of products
is grown in this stat e, from sugar cane, cacao, and tobacco in the north,
to cotton on the seaboard, and wheat, peppers, sesame seed, sweet potato,
bean, peanut, corn, potato, tomato, and higuerilla (castor-oil plant),
in the mild zone. In addition to shrimp, It has an important livestock
production of cattle (in the north). Oaxaca’s main export products are
coffee, shrimp, and forest products.
Mining is a very important activity; Oaxaca has fields of quartz, mica,
uranium, carbon, and marble, with gold on the Pacific coast, and silver
mines in Ixtlán, Ejutla, and Ocotlán. Trade and services
are the most importan t activities in the state, respectively, representing
29.6% and 22.5% of the state’s product (figure 3). However, such activities
employ only 31% of the labor force. On the other hand, the primary sector
comprises 52% of the state labor force, and the ind ustrial sector 16%
(and 20% of the state GDP). The distribution of employment has experienced
some changes. In 1970 Oaxaca’s primary sector employed 7l.5% of the state
labor force. Twenty years later the labor force in this sector had decreased,
and by 19 90 it accounted for only 52.9%. Meanwhile the secondary and service
sectors have shown an increase in their participation.
The region has important tourist areas, beach resorts (Huatulco, Puerto
Escondido, and Puerto Angel), archaeological sites (Mitla and Monte Alban),
and towns that represent the traditions of the Mexican culture. In 1990,
Oaxaca received 4.6% of the foreign tourists coming to Mexico.
Infrastructure
Oaxaca faces many infrastructure deficiencies, from education and basic
public services (accounting for its high degree of poverty) to communications.
In education, 27.54% of Oaxacans over 15 years old are illiterate, and
56.70% of the population over 15 years old has not completed primary school.
As for other services, 45.49% of the people do not have drainage, 28.81%
have no electric energy, and 42.21% do not have water supply systems, 52.51%
have houses without concrete floors, a nd 69.94% live in shanty houses.
The Pan-American Highway traverses the east side of the state passing
through the cities of Oaxaca, Tehuantepec, and Juchitán. In addition,
there are highways from Tehuacan, Puebla to Salina Cruz and Coatzacoalcos,
Veracruz, and another from Oaxaca City to Puerto Angel. Recently a new
federal highway connecting the cities of Mexico and Oaxaca has generated
an increase in economic activity in the surrounding region. The Puebla
railroad crosses the state of Oaxaca from north to eas t, and the railroad
to Chiapas and Guatemala goes from Ixtepec to Tapachula. The Istmo railroad
starts in Salina Cruz and passes through Ixtepec and Tehuantepec. But the
inefficiency of the port of Salina Cruz renders it ineffective. There are
three airpo rts and 106 rural airports in the state. Most of the municipalities
lack good transportation access, which represents an impediment to Oaxaca’s
development. Given the placement of the federal highways and railroads,
some of the Oaxacan cities (Salina Cruz , Tehuantepec, Tuxtepec, and Juchitán)
have closer ties with the cities of Veracruz than with the rest of the
cities in Oaxaca.
III. Business Generation Instead of Poverty Reduction
Two factors widely recognized in the literature offer two explanations
for the change in the pattern of expenditures as they pass from the federal
level to the state of Oaxaca. First, the public finance literature (e.g.,
Musgrave, 1 956) argues that competition among states reduces the incentives
for income redistribution policies at the local level. To increase their
revenues, local governments try to keep and attract rich tax bases. This
objective can be accomplished by 1) spending on those goods and services
that generate more economic activity, and 2) avoiding redistributive policies
that impose costs on the rich. In this case, the argument implies that
Oaxaca will concentrate its infrastructure spending on those activities
that attract private capital and increase its property tax collections,
and reduce spending of a social nature.
Second, the recent political economy literature (e.g., Persson and Tabellini,
1991, and Alesina and Rodrick, 1994), associates income disparities with
income distribution policies. That is, the wider the differences in income
levels amo ng the inhabitants of a locality, the larger the amounts devoted
to redistribution. The disparities at the federal level are larger than
at the state level. García Rocha (1984) finds a larger variation
in income at the inter-regional than at the in tra-regional level in Mexico.
This argues for an expected reduction on infrastructure intended to equalize
income.
Furthermore, the potential relocation of factors of production encourages
immobile investments, localized in the state. As labor is a mobile factor,
particularly in Oaxaca, there will be less investments that increase the
state’s produc tivity through human capital, and more that do so through
localized infrastructure.
IV. Efficiency Gains from Decentralization
The difference between federal and local patterns of investment point
to a danger in decentralizing public infrastructure to state levels, particularly
to the poor ones where the federal expenditure on social investments is
larger. However this change in the states from income distribution toward
income-generating policies does not have to result in an increase in poverty
levels.
In fact, the opposite occurred in 1970. Political rhetoric showed a
change in federal priorities from productive to social investments, with
discouraging effects for Mexico. Before this date, public policies looked
for the development o f economic centers whose success would extend to
the rest of the economy. This period was called desarrollo estabilizador
because it created a stable macroeconomic environment. However, social
demands for a fair distribution of income were followed by a more equitable
program. The following period of federal investments focused on the poor
is called desarrollo compartido (shared development). This recent period
has been associated with quite low per-capita growth rates, while the 1960s
saw a n impressive performance of this indicator. This could be the consequence
of a low return on public investments. The public capital elasticity of
output during the desarrollo compartido has been 0.04, while international
figures are between 0.10 an d 0.44 (table 1).
On the other hand, the distribution of income has not improved under
desarrollo compartido, as the income share of the lowest decile is significantly
lower than in 1970 (table 2). Furthermore, Oaxaca showed an increase in
its lev el of marginalization with respect to the rest of the country.
Its level went from 55% higher than the national mean in 1980, to 70% in
1990. This occurred in spite of Oaxaca’s higher per-capita growth in GDP
relative to the rest of the country, because O axaca was less affected
by the debt crisis of the 1980s than the rest of the country (table 3).
There is an efficiency gain when the control over investments is given
to lower government levels. Local governments are better at identifying
employment and business-generating activities in their economies. Therefore,
it could be the case that the increase in wages earned by the poor at least
compensates for the decrease in social public spending. Regressions 5 to
7 in table 4 show some evidence that, for example, state highways have
a higher impact on the income of the state than fed eral highways. Admittedly
this does not imply that the distribution of income will improve, but the
increase in productivity potentially leads to a poverty reduction that
federal strategies have failed to accomplish.
The gains in economic activity brought about from decentralization are
magnified by the Mexican fiscal arrangement. The nature of coordination
from a centralized tax structure imposes severe limits on the ability of
local governments to use tax instruments to attract private resources.
Their sources are basically limited to property taxes, water charges, and
up to 2% on payrolls (see the paper on Mexico City). Therefore, public
spending is practically the only instrument available to lo cal governments
to promote economic activity. To the extent that public infrastructure
is a complementary factor to private capital, state governments will rely
on investments of these type to generate economic activities that provide
them larger tax coll ections. In other words, this will be their most important
instrument for spurring the economy, and therefore decentralizing this
spending will have its impact on economic activity. Obviously, it remains
to be seen if given the limited amounts of locally collected revenues,
state governments will have enough incentives to generate economic activity
provided the cost in effort of identifying and investing in productive
activities.
Decentralization is particularly important in the context of NAFTA.
Competition for business activities is now not only with other Mexican
states, but also with US states and Canadian provinces. The danger of too
much competition at the state level within Mexico fades against the even
bigger danger of losing income-generating firms to other countries. The
experience of backward European regions is illustrative on this issue (OECD,
1995). They have undergone a transition in order to comp ete in a global
environment. Public infrastructure has leveled the field, financed by national
and international governments. Ortiz (1995) finds the infrastructure financed
through the European Regional Development Fund effective at bringing convergence
a mong European regions.
As mentioned before, the production of primary products is the basis
for the development of Oaxaca, which concentrates most of its labor force
and a large share of its output in this type of activity. Instead of imposing
an industrializ ation process, the local government spurs other economic
activities around primary products. This strategy has been successful in
some Asian regions. The growth in agricultural goods generates production
and consumption linkages with industrial activities , and this generates
an endogenously driven regional industrialization process. However, this
process is very dependent on "the social organization of production,
access to resources, and the logic of investment" (Hart, 1992). That
is, outsiders cannot implement this strategy because they do not understand
regional social interactions, do not use local inputs, and do not spend
their incomes in the region. These benefits remain local by decentralizing
economic activities to state authorities.
The increase in productivity of state enterprises in China is attributed
to the decentralization of control (Qian and Roland, 1994). When given
control over firms, local governments internalize their economic benefits
and costs. Under t his new management, the firms become productive and
only profitable ones remain in operation. This same logic applies to public
infrastructure. State governments will invest in those projects with higher
social return. Currently, federal agencies allocate resources after negotiating
with state and local governments. When objective criteria determine the
distribution of public funds, it eliminates the distortions arising from
meeting federal priorities in order to extract more funds.
V. Federal and State Investments
Social Development Agreement and Solidarity
The flow of federal investments for regional development is coordinated
with the actions of the states through the Convenio de Desarrollo Social
(CDS). The CDS is a legal, financial, and planning document that establishes
the actions taken by each level of government in every state. This mechanism
was created in 1977 to aid coordination between levels. It evolved as an
instrument for development in 1983, with the participation of state governments
in planning. In 1992, social concerns became the focus of regional development
policy. The Secretaría de Desarrollo Social (Department of Social
Development) is the federal agency in charge of preparing this document
every year in coordination with each state governmen t. This ministry is
in charge of coordinating all federal actions that pertain to the economic
as well as the social development of regions in Mexico.
The federal government, when using economic criteria, allocates productive
investments so as to maximize national output. Public investments flow
to those regions with higher productivity. Looney and Federiksen (1981)
and León an d Escobar (1986), using data of 1970 and 1980, respectively,
find that productive investments have a higher impact on output in intermediate
regions than in backward regions in Mexico. This reduces Oaxaca’s participation
in these funds.
The pattern of public investment allocation depends on the relative
success of productive and social investments in achieving public objectives.
This relative success is different for the federal and state levels. Productive
investments might be more profitable at the federal level when placed in
intermediate than in backward regions, but backward regions see higher
returns from productive investment. Conversely, the federal level will
allocate more social investment in backward regions , but backward regions
enjoy lower returns from this type. Table 4 shows the difference in productivity’s
of these two investments for the federal government and for the 10 Mexican
states with less income. Regressions 1 to 4 report higher highway producti
vity and lower social productivity when we move from the whole country
to a smaller group of poor states.
On the other hand, when the objective is to reduce poverty, social investment
at the federal level concentrates on regions with higher levels of marginalization.
This type of investment is distributed to favor backward over intermediate
regions. Accordingly, Oaxaca, as a backward state, receives less productive
and more social investments than other Mexican states. But since the national
and state governments have different motivations, a change in this pattern
should be expected.
The federal program in charge of fighting poverty in Mexico is called
Solidaridad. By looking at the pattern of investments that Solidaridad
places in Oaxaca, one notices an emphasis on social programs in this state.
Table 5 shows that Oaxaca receives more than its share of Solidaridad funds
in terms of population and income. Oaxaca receives less than its share
for productive infrastructure and more for social welfare. Nevertheless
Oaxaca receives large amounts for productive purposes. But this table gives
a somewhat misleading perspective with respect to productive enhancement
funds. Among the programs that operate under this heading, three are allocated
to indigenous communities, which are over-represented in the state as mentioned
in section II. The Fund for the Development of Indigenous Peoples concentrates
18% of its projects in Oaxaca and 42% of its beneficiaries live in this
state. The Fund for Promotion of the Indigenous Cultural Heritage has 1
3% of its projects in this state. Finally, Oaxacans are 22% of those receiving
help for problems with the federal judiciary through the program Justice
INI-Solidaridad.
The limited funds that the state government has do not allow it to implement
programs of regional development. Total public investment in Oaxaca between
1993 and 1994 reached 2,726 million pesos (900 million USD). Of these funds,
24% we nt to urban municipal projects in the 12 largest cities of Oaxaca.
Most of the investment went to large projects of regional impact carried
out by the federal government and the private sector. The state government
only financed 9% of total investments. T he federal government built roads
and electric generation equipment, rehabilitated ports and tourist infrastructure.
The private sector built hotels and roads to attract tourists and invested
in agroindustries. The private sector projects were built in to wns with
good transportation access (Oaxaca City, Tuxtepec, and Huatulco)
State Development Program
The objectives of the state government development program for
1995 through 2000 are social development and economic growth. The plan,
called the State Social Development Program, mentions the pervasive presence
of indigenous groups and the very high rate of poverty in Oaxaca as reasons
to sustain their emphasis on this type of investment. Furthermore, state
authorities reckon that the previously implemented policies have been successful,
which they prove by pointing to the d ecrease in political unrest, which
reflects the lack of attention to local needs, as a consequence of better
social services.
Based on these conditions, the document turns into a complaint about
the insufficiency of existing funds and about the restrictions on using
federal Solidaridad funds. The historical lack of infrastructure for attending
to basic needs is the reason for the first complaint. Solidaridad programs
provide grants earmarked for a particular type of public good. State authorities
complain that the rules of the program do not allow for adjustment to the
social reality. Different c ultures in the diverse ethnic makeup of Oaxaca
require differing solutions. Many of these needs violate the constraints
of Solidaridad programs. The plan maintains that a truly democratic society
would acknowledge ethnic differences and allow more local decisions over
the use of federal grants.
The proposal that follows this diagnosis consists of two types of programs,
conventional and nonconventional. The first type, for universal needs that
are a concern to any culture, requires large amounts of resources. Nonconventional
pr ograms would address unique social demands, and they require comparable
amounts of funds.
Negotiation with the Federal Government
The state government in its negotiation with the federal government
uses its development program. More than the diagnosis and the complaint,
concrete actions reflect the preferences of the state government. There
are five specific p olicy recommendations that the state level presents
to the federal level. First is the consolidation of the federal policies
affecting the state. Second is the participation of the local level in
the determination and application of these policies. Third is the greater
participation of local governments in the design of programs. Fourth is
increasing the prevalence of income-generating programs. And fifth is the
demand for more federal funds.
To the extent that local governments have different preferences from
the federal government, it is obvious that they will have differing views
on the application of public funds. What is more relevant is the pattern
that emerges from th ese actions. The state government is, on the one hand,
negotiating more funds from the federal government. All the states do this.
What is interesting is the social emphasis. Oaxaca receives more than its
share of social investments. By appealing to its h istorical insufficiency
and the lack of existent funds to face its deficit, Oaxaca is requesting
funds for a worthwhile activity as perceived at the national level. Similarly,
Oaxaca attempts to get more than its share in other investments by incorporatin
g many federal programs under social objectives.
On the other hand, Oaxaca’s government has the objective of increasing
its discretion over these funds. Behind its concern for participation in
the planning of federal investment and the design of programs is the desire
to have more inf luence on the allocation of federal funds. Again, this
is not exclusive to Oaxaca. What is different are the expressed reasons
and the type of programs that they would encourage. Federal programs do
not adapt well to the 16 cultures of the region. State a uthorities maintain
that theirs do given that they know these cultures better than the authorities
at the federal level. But as an instrument that works for one culture does
not necessarily work for another, state-wide nonconventional programs are
as like ly to fail as federal ones. Furthermore, of the nonconventional
programs they suggest two thirds are directed toward strengthening the
productive capacity of the state. This contrasts with the Solidaridad programs,
of which less than half have prod uctive objectives.
A comparison of tables 6 and 7 illustrates the differences between the
two levels. Table 6 describes the division of funds at the federal and
state levels, according to the three types of Solidaridad programs, while
table 7 shows the division contained in the State Development Program.
It is clear that Oaxaca has less interest in social welfare programs than
in productive and regional development ones. Table 8 shows Oaxaca will
concentrate its own resources on these activities.
VI. State Government Development Strategy
The Oaxacan state government openly maintains that the strategy of Solidaridad
presents two problems. Solidaridad emphasizes three areas: education, health,
and the supply of food for poor regions. Oaxacan authorities say that the
program has to be extended to other areas in order to achieve the goal
of permanently reducing poverty. The plan that they propose has seven programs.
First is education; then drinkable water; food; and health and sanitation.
The other two ar eas are human rights for indigenous groups, and an advertising
campaign to help the public understand the goals and benefits of the plan.
On the other hand, they say, programs directly aimed at reducing poverty
should have as their specific target-groups women and children.
The economic development of the regions requires of a social base on
which economic activities can rest. The construction of this social base
requires a healthy and educated population. State authorities have identified
the success of w ater provision and sanitation for health improvement.
On the other hand, the integration of indigenous groups to the rest of
the economy requires an understanding of the differences between their
systems of justice. This is the goal of the program in this area. Public
understanding of the objectives and programs of this strategy allows them
to reach the intended beneficiaries.
With only 24.2% of the Oaxacan population living in localities of more
than 10,000 inhabitants, it is very costly to provide social infrastructure.
In fact, the state government plans to deliver basic services mainly to
the 12 largest t owns of Oaxaca. This does not mean that it ignores other
communities, but from a business-attraction perspective, there will be
an increase in secondary and tertiary activities, with migration to the
most dynamic cities of the state, continuing the tenden cy toward concentration
in larger centers. Oaxaca already generates one of the largest outflows
of migration to other states and over Mexico’s border. Economic development
within the region would help Oaxaca retain a larger number of its population.
This does not mean, however, that the focus will necessarily be only
on revenues, as employment of the local labor force, as well as the adequate
satisfaction of public services, is required by the local constituency.
As mentioned in th e development program, social investments have reduced
violent confrontation which had been an important destabilizing factor
in previous administrations. The benefit of providing basic infrastructure
to meet social demands has clearly been internalized b y the local government.
Oaxaca’s Comparative Advantages
To attract capital into the region, it is necessary to find those activities
in which Oaxaca has a comparative advantage. These activities should determine
the allocation of state investments. We will next review the activities
that the state government has identified as those in which it has comparative
advantage (see the appendix for a description of Oaxaca). Of course this
does not mean that the Oaxacan government knows all of them, or even that
it is right in those it presents. But at least it has gone through this
necessary step.
Primary products constitute the basis of Oaxaca´s productive potential.
The variety of climates that exist in the region and the absence of a cold
winter make it ideal for the production of coffee beans and fruits like
mango, pineapple, sugarcane, and lime. Almost half of the area of the state
(43%) is well suited for forestry production, and different types of trees
are exploited, mainly pine varieties.
Local knowledge of the social arrangement is necessary for the commercial
use of these resources. Virtually all of the forestry area (97%) is communal
property, ejidos. Contrary to the private property norms to discourage
excessi ve exploitation, Oaxaca´s norms are geared to this type of
property tenure. In ejidos, the coordination of members of the community
for this activity is crucial. The coordination is performed by the state
government. It also coordinates producers a nd processors, it reckons that
Oaxaca already has too much capacity for the processing of wood into primary
products, but it lacks machinery for supplying the paper factories of the
state. Public infrastructure is another input in forestry production, whi
ch is limited by the availability of roads in the Sierra Norte and Sierra
Sur, the two temperate climate regions of the state.
Its 370 miles of coast, 420,000 acres. of lakes and 247,000 acres of
salty basins give this state an important fishing potential. Shrimp farms
directed toward foreign markets already operate in the state. However there
is not state plan to increase this type of activities, as they do not generate
high employment nor do they use local inputs.
The industry of the state is not diversified, and is mainly concentrated
around primary products and natural resources. The most important ones
are the processing and packing of agricultural and forestry goods, electricity
generation, o il purification, and cement manufacture.
Besides the tourist resorts already built, Oaxaca plans to expand its
"cultural tourism," taking advantage of its cultural diversity
and archeological heritage. The state already attracts many tourists, their
challenge is to r etain them in the state. State authorities maintain that
they have the sites for this objective but deficiencies in transportation
between them prevents a more profitable exploitation of this activity.
Finally, Oaxaca has recently been successful at attracting maquiladora
industries. The authorities reckon that Oaxaca´s tradition of craftsmanship
and its low wages provide an advantage. This type of investment is very
dependent on good transportation; the maquiladoras already operating followed
the opening of the new highway connecting Oaxaca City with Mexico City.
The other potential access to Oaxaca is its port, but the inefficiency
of the Salina Cruz port has not allow ed the expansion of this activity
to the southern region.
The economic strategy of the Oaxacan government aims for self-sufficiency.
This is the expected outcome from linking producers and consumers in the
region. But diversifying production to attend to state demands instead
of exporting prod ucts out of the state might not be the most efficient
decision. Although there is no data available, it seems that the sharp
recession Mexico is experiencing has affected Oaxaca less than the rest
of the country. This is a consequence of Oaxaca’s concentr ation on the
production of export goods, which enjoyed an increase in relative price
with the peso’s devaluation. Leaving room for innovation at lower levels
besides increasing variety also allows for regional mistakes.
VII. Conclusion
The decentralization of federal funds for regional development will
result in a change in investments in poverty reduction infrastructure.
This change is a consequence of different circumstances that the state
and federal levels hav e to face. Reduction in social welfare infrastructure
is a concern particularly in the very poor states. However, there is also
an efficiency gain in this change that will increase the income of the
region and, probably, reduce its poverty level. State au thorities are
more able than federal ones to identify productive activities. They know
the social organization of production, knowledge necessary to the process
of development.
The process of decentralization has already provided positive results.
The government of Oaxaca formulated a comprehensive plan because they know
that their views are taken into account by federal agencies. Federal agencies
cooperate mo re with local governments that show that their investments
complement the investments of the state and other agencies. This cooperation
has provided the incentives for state governments to take a more active
position in policy design, even though they do not yet control expenditure
functions.
The federal level should keep channeling more resources to poor states.
The change in priorities from social to productive infrastructure does
not imply that the transfers of functions should be restricted. Public
infrastructure is an i mportant element for generating convergence among
states. To be able to compete with other regions, backward states should
receive more than their population and income share .
The second necessary requirement for an efficient decentralization is
that the state governments internalize all the benefits and costs of their
decisions. That is, that they are given full responsibility for all basic
infrastructure fu nctions, including water supply, school infrastructure,
and state, local, and rural highways. Therefore, an objective system for
assigning regional development funds is required, through which state governments
can assess available funds for their program s.
Finally, to guarantee a certain level of provision of basic infrastructure,
minimum expenditures on this area could be demanded from state governments.
The transfer of funds should be linked to the achievement of poverty reduction,
or m ore realistically, to a certain level of provision of social services.
Less desirable would be the use of categorical grants that maintain expenditure
in those areas favored by the federal level, but transfer the control over
specific programs to the stat e level.
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and Carlos Tello, eds. La Desigualdad en México, Siglo XXI,
3ra. ed.
Looney, Robert and Peter Frederiksen (1981). "The Regional Impact
of Infrastructure in Mexico." Regional Studies Vol. 15, No.
4, 285-296.
Organisation for Economic Co-operation and Development (1994). "Recent
Trends in Regional Policies in OECD countries." OECD, 1994.
Ortíz, Lisa M. (1995). "The Contribution of Infrastructure
to Regional Economic Growth and Convergence in the European Union."
Mimeo, University of California, Berkeley.
Persson, Torsen and Guido Tabellini (1991) "Is Inequality Harmful
for Growth? Theory and Evidence," American Economic Review,
Vol. 48.
Qian, Yingyi and Gérard Roland (1994), "Regional Decentralization
and the Soft Budget Constraint: the Case of China." Centre for Economic
Policy Research. Dicussion Paper Series.
Sachs, Jeffrey and Xavier Sala-i-Martin (1990), "Federal Fiscal
Policy and Optimum Currency Area," Harvard University, 1990, processed.
Shah, Anwar (1994), "The Reform of Intergovernmental Fiscal
Relations in Developing and Emerging Market Economies." Policy
and Research Series. The World Bank.
State Social Development Program 1995-2000. State Government
of Oaxaca, 1995.
Table 1 List of Studies of Productivity
of Public Infrastructure
|
Paper
|
Area of Study
|
Public Capital Elasticity of
Output
|
| Aschauer
(1989) |
Group of
Seven |
0.44
|
| Aschauer
(1989) |
United States |
0.39
|
| Holz-Eakin
(1988) |
United States |
0.39
|
| Munell (1990a) |
United States |
0.34
|
| Easterly
and Rebelo (1993) |
International |
0.16
|
| Shah (1992) |
Mexico |
0.04
|
| Uchimura
and Gao |
Taiwan |
0.24
|
| Uchimura
and Gao |
Korea |
0.19
|
| Bregman and
Marom |
Israel |
0.31
|
| Canning and
Fay |
International |
0.07
|
| Costa, Ellson
and Martin (1987) |
United States
(States) |
0.20
|
| Eisner |
United States
(States) |
0.17
|
| Munell (1990b) |
United States
(States) |
0.15
|
| Meria (1973) |
Japan (Regional) |
0.20
|
| Williams
and Mullen (1992) |
United States
(States) |
0.10-0.21
|
| Proud Homme |
France (Regional) |
0.28
|
Table 2
Income Distribution in Mexico
| Decile |
1950 |
1958 |
1963 |
1968 |
1970 |
1975 |
1977 |
1984 |
1989 |
1992 |
| I |
2.43 |
2.32 |
1.69 |
1.21 |
1.42 |
0.69 |
0.87 |
1.19 |
1.14 |
1.00 |
| II |
3.17 |
3.21 |
1.97 |
2.21 |
2.34 |
1.28 |
2.04 |
2.66 |
2.48 |
2.27 |
| III |
3.18 |
4.06 |
3.42 |
3.04 |
3.49 |
2.68 |
3.09 |
3.86 |
3.52 |
3.36 |
| IV |
4.29 |
4.98 |
3.42 |
4.23 |
4.54 |
3.80 |
4.33 |
5.01 |
4.56 |
4.38 |
| V |
4.93 |
6.02 |
5.14 |
5.07 |
5.46 |
5.25 |
5.82 |
6.26 |
5.76 |
5.45 |
| VI |
5.96 |
7.49 |
6.08 |
6.46 |
8.24 |
6.89 |
7.37 |
7.66 |
7.21 |
6.77 |
| VII |
7.04 |
8.29 |
7.85 |
8.28 |
8.24 |
8.56 |
9.51 |
9.68 |
9.02 |
8.62 |
| VIII |
9.63 |
10.73 |
12.73 |
11.39 |
10.44 |
8.71 |
12.49 |
12.42 |
11.42 |
11.22 |
| IX |
13.89 |
17.20 |
16.45 |
16.06 |
16.61 |
17.12 |
17.74 |
17.00 |
15.92 |
16.09 |
| X |
45.48 |
35.70 |
41.60 |
42.05 |
39.21 |
45.02 |
36.68 |
34.26 |
38.97 |
40.84 |
Source: From 1950 to 1975, López
(1989); the rest from Income-Expenditure Survey, INEGI, and it is the current
monetary income.
Table 3
|
Average Yearly Rates of Growth
in Real GDP and Population
|
|
Real GDP
|
Population
|
|
Period
|
National
|
Oaxaca
|
Period
|
National
|
Oaxaca
|
|
70-75
|
7.01%
|
7.47%
|
70-80
|
3.32%
|
1.63%
|
|
75-80
|
8.22%
|
6.68%
|
80-90
|
1.97%
|
2.46%
|
|
80-85
|
0.68%
|
5.45%
|
|
|
|
|
85-88
|
-4.16%
|
-5.24%
|
|
|
|
Source: INEGI
Table 4
OLS regressions of state income against
capital stock, kilometers of highways in the state and Solidaridad funds for 1989 and 1990. Area refers to state square miles. All variables
are in per-capita terms and expressed in logs. The data come from "Sexto
Informa de Gobierno, Carlos Salinas de Gortari", SCT for highways
and Secretariat of Social Development for Solidaridad. Capital stock
was constructed from investment financed through private credit in t he
state from 1981 to 1990 assuming a 10% linear rate of depreciation.
Table 5
|
Allocation of Solidaridad Funds in Oaxaca and Oaxaca’s Share
|
|
Year
|
Social Welfare
|
Production
|
Regional Development
|
Oaxaca´s Share
|
|
1989
|
35%
|
26%
|
39%
|
6%
|
|
1990
|
32%
|
33%
|
35%
|
7%
|
|
1991
|
34%
|
25%
|
41%
|
6%
|
|
1992
|
49%
|
18%
|
33%
|
5%
|
|
1993
|
44%
|
19%
|
37%
|
6%
|
|
1994
|
36%
|
22%
|
42%
|
7%
|
Source: Secretariat of Social Development
Table 6
Share Spent by Level of Government
on Solidaridad Programs
|
Social
|
Productive
|
Regional
|
|
Year
|
Federal
|
State
|
Federal
|
State
|
Federal
|
State
|
|
1989
|
54%
|
56%
|
21%
|
13%
|
25%
|
31%
|
|
1990
|
49%
|
61%
|
28%
|
15%
|
23%
|
23%
|
|
1991
|
50%
|
57%
|
20%
|
12%
|
30%
|
31%
|
|
1992
|
53%
|
63%
|
23%
|
12%
|
25%
|
26%
|
|
1993
|
55%
|
65%
|
23%
|
11%
|
22%
|
24%
|
|
1994
|
55%
|
62%
|
20%
|
12%
|
25%
|
26%
|
Source: Secretariat of Social Development
Table 7
Division of Expenditure in the State
Social Development Program
|
Social
|
Productive
|
Regional
|
|
1996
|
22%
|
30%
|
48%
|
|
1997
|
27%
|
32%
|
41%
|
|
1998
|
27%
|
30%
|
44%
|
|
1999
|
25%
|
28%
|
46%
|
|
2000
|
24%
|
26%
|
50%
|
Source: State Government of Oaxaca
Table 8
Participation of the CDS and the State
Level in the State Social Development Program
|
Social
|
Productive
|
Regional
|
|
Federal
|
State
|
Federal
|
State
|
Federal
|
State
|
|
1996-2000
|
41%
|
11%
|
20%
|
51%
|
39%
|
38%
|
Source: State Government of Oaxaca
Figure 1
Source: CONAPO
Figure 2
Source: CONAPO
Figure 3
Source: INEGI
=0.49144
=0.43042