A Pre-COVID Measure of the Effect of the 2018 Economic Shift in Mexico: Extended Version

Abstract

We produce a measure of the pre-COVID economic effect of the 2018 presidential election outcome in Mexico and the subsequent economic changes that the economy experienced. We use the Synthetic Control methodology to estimate a counterfactual for Mexico's GDP per capita in 2010 United States dollars. The result indicates a reduction of $332.00 US dollars by the fourth quarter of 2019. A placebo test indicates that the result is statistically significant at a level of 7.14%. The comparison between counterfactual and observed income shows that GDP had a positive trend until the second quarter of 2018. Starting in the third quarter of 2018, the Mexican economy fell below that trend and displayed a different path with a negative slope. Our results are robust to alternative specifications. Additionally, we show that, at least for the previous presidential term that started in 2012, there was no first-year-of-government effect that was discussed by economists in the media to explain the contraction in 2019. We also find that there was no immediate negative impact on the Mexican economy of the election of Donald J. Trump as president of the United States in 2016, considering that he had an anti-NAFTA rethoric in campaign.

Keywords: Synthetic control; Placebo test; Economic regime change; Mexican economy

JEL Classification: C54, O5