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Chapter 1 the Economy of Morelos 1. THE ECONOMY OF MORELOS – 27 Chapter 1 The economy of Morelos This chapter provides an assessment of the economy of Morelos identifying strengths and challenges for economic development. The analysis starts with the macroeconomic context which affects the economy of Morelos and then turns to a discussion of the regional trends of output per capita and labour productivity. The performance of Morelos is compared with the average performance of OECD TL2 regions and the Mexican average. Furthermore, the performance of Mexican states similar to Morelos is used as a benchmark to assess the competitiveness of Morelos’ economy. The analysis then turns to the factors of production that can boost the performance of Morelos, with particular emphasis on labour productivity. The level of skills of the labour force is analysed considering both the quality of education and the level attained by the labour force. Other important factors of production are capital formation, including transport infrastructures, and labour supply. Finally, the role of informality is considered as it represents a bottleneck to development and, at the same time, a signal of structural problems. The chapter concludes with an assessment of some well-being indicators for Morelos. The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. OECD TERRITORIAL REVIEWS: MORELOS, MEXICO © OECD 2017 28 – 1. THE ECONOMY OF MORELOS 1.1 Introduction This chapter provides an assessment of the socio-economic conditions of Morelos, highlighting current challenges and the strengths to build upon for a resilient and inclusive economy. It sets the policy targets that will be pursued in detail in the following chapters of the review. Morelos is a small state located in the centre of Mexico, one hour and a half from the Mexican capital, Mexico City. Its economy is specialised in the manufacturing sector (automotive and chemicals), with the presence of large multinational firms (e.g. Nissan and Saint-Gobain) but, at the same time, it is quite diversified with the presence of large agricultural and service sectors, as well as prominent research centres linked to technical universities. The territory is also rich in natural amenities and in the recent past was the top destination for people in Mexico City who wanted to take a weekend break. Despite these potential strengths, the economy has been suffering in terms of low productivity growth and, as a consequence, flat growth of GDP per capita in the period 2003-13. This sluggish performance is partly linked to the global financial crisis that reduced international demand and affected many exporting countries, such as Mexico. The sluggish performance of Morelos however was evident also before the financial crisis, thus suggesting the presence of structural bottlenecks to development. Boosting labour productivity is probably the biggest and most important challenge, as it will not only increase GDP per capita over the long run but also contribute to a more inclusive economy. Two other important challenges are: low-skilled labour force and a large share of informality. The former represents a bottleneck to increase the value-added content of firms’ production, which will require the adoption of new technologies and new production processes. It is also a concern for well-being as low-skilled workers tend to be employed in the informal sector with scarce access to health insurance and social security. Indeed, the large share of informality represents an obstacle to economic growth as firms tend to rely on cheap labour conditions, avoid paying taxes and complying with regulations, rather than investing in innovative technology and production processes that can result in a higher value-added content of their products, and better economic conditions for their workers. Despite improvement in recent years insecurity is still higher than the Mexican average, negatively affecting the business environment. The World Bank ease-of-doing- business survey ranks Cuernavaca (the capital of Morelos) amongst the lowest in Mexico in terms of ease of doing business, with challenges represented by the low enforcement of contracts and difficulties in obtaining construction permits. The chapter is organised as follows. The next section presents an introduction to the state of Morelos including some general figures that contextualise the state within Mexico. Then the macroeconomic framework is considered, highlighting the challenges that it presents for the economy of Morelos. In the following sections, the analysis focuses on Morelos’ demographic and economic trends. The strengths of Morelos are analysed considering the productivity potentials, physical capital, and the labour market. The following section presents several aspects of the economy linked to well-being, such as income inequality and poverty, the environment, and safety. A final section summarises the results of the analysis and provides final remarks. OECD TERRITORIAL REVIEWS: MORELOS, MEXICO © OECD 2017 1. THE ECONOMY OF MORELOS – 29 1.2 The state of Morelos The state of Morelos is one of the 32 states and federal entities that constitute the United States of Mexico. It is located in the centre of the country, bordering the Federal District (Mexico City) to the south (Figure 1.1). The state is one of the smallest in Mexico, with a population of 1.9 million in 2015 corresponding to 1.6% of the national population, and a surface area of 4 892 square kilometres making it the third smallest state in Mexico (Figure 2) (INEGI, 2015). It consists of 33 municipalities with an average population size of 57 497 inhabitants in 2014, with the smallest municipality counting 7 073 people and the largest municipality (Cuernavaca) reaching a population of 382 773 inhabitants. Figure 1.1. The state of Morelos is in the centre of Mexico Source: Map based on INEGI (2010a), “Marco Geoestatistico 2010 versión 5.0”, Censos de Poblation y Vivienda, Instituto Nacional de Estatistica y Geografía. Morelos is among the most urbanised states of Mexico. The share of population living in predominantly urban regions in the state is 74%, which is significantly higher than the national and OECD averages. There are only three Mexican states with a larger share of population living in predominantly urban regions. These are: Federal District, Mexico and Nuevo Leon. The predominantly urban regions make up 36% of OECD TERRITORIAL REVIEWS: MORELOS, MEXICO © OECD 2017 30 – 1. THE ECONOMY OF MORELOS the total land area of Morelos, compared to the national average of 5.7%. The share of Morelos’ population living in intermediate regions and in predominantly rural regions is 19% and 7% respectively. Like in other Mexican states, such as Puebla and Tlaxcala, there are no predominantly rural remote regions in the state of Morelos (Figure 1.2). Figure 1.2. Distribution of population and area by type of region, 2010 Predominantly urban Intermediate Predominantly rural close Predominantly rural remote Population Area Federal District (MX) Federal District (MX) State of Mexico State of Mexico Nuevo Leon Nuevo Leon Morelos Morelos Quintana Roo Quintana Roo Aguascalientes Aguascalientes Tlaxcala Tlaxcala Jalisco Jalisco Queretaro Queretaro Yucatan Yucatan Baja California Norte Baja California Norte San Luis Potosi San Luis Potosi Puebla Puebla Colima Colima Guanajuato Guanajuato Nayarit Nayarit Chihuahua Chihuahua Michoacan Michoacan Coahuila Coahuila Tabasco Tabasco Guerrero Guerrero Hidalgo Hidalgo Baja California Sur Baja California Sur Campeche Campeche Chiapas Chiapas Durango Durango Oaxaca Oaxaca Sinaloa Sinaloa Sonora Sonora Tamaulipas Tamaulipas Veracruz Veracruz Zacatecas Zacatecas OECD OECD Mexico Mexico 0 20406080100 0 20406080100 % % Source: OECD (2016a), “Regional demography”, OECD Regional Statistics (database), http://dx.doi.org/10.1787/a8f15243-en (accessed 3 November 2016). Morelos is characterised by high population density. The state of Morelos is one of the smallest within Mexico; however in terms of population density is third only behind the Federal District (MX) and the state of Mexico. In 2014 there were 388 inhabitants per square kilometre in Morelos compared to an average across states (excluding the Federal District) of 114 inhabitants per square kilometre (Figure 1.3). The population (1.9 million inhabitants according to census data in 2015) is concentrated in two metropolitan zones in the north of the state, the metropolitan area of Cuernavaca and the metropolitan area of Cuautla. The former is the biggest, consisting of seven contiguous municipalities, representing almost half of the population the state of Morelos (49.24% in 2014). However in absolute terms it is not a big metropolitan area compared to other Mexican cities (OECD, 2015a). With a population of less than a million inhabitants (934 244 in 2014), it is among a group of medium- sized metropolitan zones. OECD TERRITORIAL REVIEWS: MORELOS, MEXICO © OECD 2017 1. THE ECONOMY OF MORELOS – 31 Figure 1.3. Morelos is one of the most densely populated Mexican states Population density measured in 2014 800 700 600 500 400 300 200 100 0 Note: Federal District (MX) is excluded (5 980 inhabitants per square kilometre). Source: OECD (2016a), “Regional demography”, OECD Regional Statistics (database), http://dx.doi.org/10.1787/a8f15243-en (accessed 3 November 2016). In 2013, Morelos registered a GDP per capita of USD 11 613. This level is lower than the national average (USD 17 230), and even excluding the state of Campeche the level of Morelos is below the average (USD 14 717).1 For a comparison, the GDP per capita in the Federal District is three times higher than in Morelos, USD 34 223 (Figure 1.4). Figure 1.4. GDP per capita across Mexican states, 2013 USD 100 000 90 000 80 000 70 000 60 000 50 000 40 000 30 000 20 000 10 000 0 Note: GDP is calculated in terms of purchasing power parity (PPP) and expressed in constant 2010 USD.
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