INDUSTRIAL ECONOMY: CONCEPT, IMPORTANCE, EXAMPLE FROM MEXICO - ECONOMY - 2025

The industrial economy refers to those activities that combine different factors of production (facilities, supplies, work, knowledge) to produce material goods for the market.

It is the study of companies, industries and markets. It scans companies of all sizes, from local corner stores to multinational giants like WalMart or Tesco.

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In addition, it considers a wide range of industries, such as electricity generation, automobile production, or restaurants, to name a few.

Industrial economics uses theoretical models to understand decision making. In addition, he often develops empirical statistical models to identify relationships between variables of interest. For example, understand the relationship between product price, advertising, and earnings.

One of the key questions in industrial economics is evaluating whether a market is competitive.

Competitive markets are often good for consumers, although they are not always viable, which is why most industrial economics courses include analysis of how to measure the degree of competition in markets.

Concept

Industrial economics is the study of competitive conditions and monopoly, as they can affect market results.

According to Scherer, industrial economics is primarily concerned with how productive activities are harmonized with the demand for goods and services through some organizational mechanism, such as a free market.

Ferguson defines industrial economics as the application of microeconomic theory to the analysis of companies, markets, and industries.

On the other hand, economic development is defined as a sustainable increase in living standards, which implies higher per capita income, better education and health, as well as the protection of the environment.

Theory of the firm

Industrial economics is seen as the development of the theory of the firm, which consists mainly in the analysis of different market structures and their implications for economic well-being.

Industrial economics recognizes that companies are often oligopolistic, multinational, multi-product, and multi-platform that:

- They compete with each other differentiating their products.

- They protect their innovations with the backing of patents.

- They reform entire industries by buying from their competitors.

- Lobby widely for preferential treatment from the government.

Therefore, industrial economics recognizes that the theory of competitive market structures, although easy to solve when an equilibrium exists, in most cases cannot explain the composition and behavior of firms in industry.

By analyzing decision making at the business level, industrial economics helps to understand issues such as:

- The levels at which capacity, production and prices are established.

- The degree to which the products differ from each other.

- How much companies invest in research and development.

- How and why companies advertise.

Importance

Increase in national income

It enables countries to make optimal use of their scarce resources. The quantity and quality of the products manufactured in the companies increases, which generates a greater contribution to the gross national product.

Higher standard of living

The work done is worth more. Furthermore, due to higher productivity, individual income increases. This increase in income raises the standard of living for ordinary people.

Economic stability

A nation that depends on the production and export of raw materials alone cannot achieve a rapid rate of economic growth.

Fluctuating demand for agricultural products and raw materials hampers economic progress and also leads to an unstable economy. Industrialization is the best way to provide economic stability.

Improve balance of payments

Industrialization increases the export of manufactured products, more profitable in foreign exchange. At the same time, local processing of raw materials reduces the import of goods, helping to conserve foreign exchange.

The effects of the industrial economy of being oriented to exports and also to import substitution help to improve the balance of payments.

Increase in agricultural production

Industrialization provides machinery to the agricultural sectors, including technologies such as tractors, crushers, combines, and aerial spraying.

The increased use of modern technologies has increased crop yields per hectare.

Increase in savings and investments

Because industrialization increases workers' income, it also increases their ability to save. These voluntary savings stimulate economic growth.

Increase in government revenue

The export of goods provides foreign exchange. In addition, excise duties and other taxes on goods increase the revenue of the country's government.

The income tax received from industrialists also adds to the government's revenue stream.

Industrial economy in Mexico

Mexico manufactures and exports the same amount of products as the rest of Latin America combined. Mexico's main export is manufactured products.

Mexico's trade agreements allow its manufacturers duty-free access to 60% of the world. This profit attracts foreign factories.

Automotive industry

Between 2010 and 2015, Mexico grew from ninth to seventh among the largest automakers.

It is the fourth largest exporter of vehicles. It recently surpassed Japan as the second largest exporter of auto parts to the US.

The quality standards for the Mexican automotive industry are internationally recognized. This industry is not only engaged in research and development activities, but also produces technologically complex components.

Food industry

Compared to Western European countries and the US, a large part of the country's industrial economy is food manufacturing, which includes some world-class companies.

Bimbo is the largest bread producer, since it bought the Sara Lee American bread factory, and Gruma is the world's largest tortilla maker.

Electronic industry

Mexico is an important manufacturing center for electronic products. The electronics industry in the country has experienced tremendous growth in the last ten years.

It is the country that has the sixth largest electronics industry in the world. This includes most flat screen televisions sold in the United States. It also manufactures medical devices and aerospace parts.

Oil industry

The North American country is the eighth largest oil producer in the world, with almost 3 million barrels per day. It is below Iraq, Iran or Canada, but above other large exporters such as Brazil, Nigeria or Kuwait.

The publicly owned Mexican company Pemex is responsible for the research, exploration and sale of oil. It is the second largest Latin American company after the Brazilian Petrobras.

References

1. Insee (2019). Industrial economy. Taken from: insee.fr.
2. Caroline Elliott (2019). Industrial Economics. Studying Economics. Taken from: studyingeconomics.ac.uk.
3. Owlcation (2018). Industrialization and Economic Development. Taken from: owlcation.com.
4. Gideon Gono (2019). Industrial Economics and Economic Development. AIU. Taken from: aiu.edu.
5. Kimberly Amadeo (2019). Mexico's Economy Facts, Opportunities, and Challenges. The Balance. Taken from: thebalance.com.
6. World Atlas (2019). What Are The Biggest Industries In Mexico? Taken from: worldatlas.com.