Economic Implications of Mexico's Sudden Demographic Transition

Mexico is in the midst of an unprecedented demographic transition that is changing the size and age structure of its population. The most salient demographic change—and clearly the precursor of most other demographic changes—is the abrupt decline in the country's fertility rate from 6.5 in the early 1970s to the current 2.2 mark, one of the fastest declines in the world. This dramatic reduction of fertility rates has created a “boom generation” that is currently in its prime working years and that will gradually age and retire. As Mexico experiences sub-replacement fertility rates over the next decades, old-age dependency ratios will escalate to unprecedented levels, carrying significant economic implications, both in Mexico and in the United States. After reviewing the economic literature on the link between demographics and economics, this paper attempts to shed some light on the relationship between Mexico's demographic patterns and economic development since 1950, offering possible explanations for the apparent lack of an expected connection. The paper then discusses the implications of Mexico's demographic projections on both sides of the border.Business Economics (2008) 43, 40–54; doi:10.2145/20080304