Why Is Mexico Considered a Third World Country?

Mexico is often labeled a “Third World” country, but the term has evolved beyond its Cold War origins. Today, it refers to nations facing economic challenges, social inequalities, or developing infrastructure. While Mexico has the world’s 15th largest economy and strong industrial sectors, significant disparities contribute to this classification.

Understanding why Mexico is still considered a developing nation requires examining wealth distribution, trade relationships, and government finances.

Criteria Used in International Classifications

International organizations assess economic and social development using various metrics. The United Nations Development Programme (UNDP) measures life expectancy, education, and income per capita through the Human Development Index (HDI). Mexico ranks as a high human development country, but its score remains below fully industrialized nations, highlighting gaps in education and healthcare.

The World Bank classifies economies by gross national income (GNI) per capita. As of 2024, Mexico falls into the upper-middle-income category, with a GNI per capita of approximately $10,000—well below high-income nations like the United States, where it exceeds $70,000. This classification affects access to international financing and development programs.

Credit rating agencies such as Moody’s, S&P, and Fitch evaluate sovereign creditworthiness, influencing borrowing costs. Mexico maintains an investment-grade rating, but fiscal stability concerns and public debt management affect its outlook. A downgrade would increase borrowing costs, limiting government spending on infrastructure and social programs.

Income and Wealth Disparities

Mexico’s economy is marked by stark income inequality. A small elite controls a large share of wealth, while nearly 40% of the population lives below the national poverty line. This imbalance is reflected in the country’s Gini coefficient, one of the highest among OECD nations.

Regional disparities deepen economic inequality. Northern states like Nuevo León and Baja California benefit from industrialization and proximity to the U.S., resulting in higher wages and better infrastructure. Meanwhile, southern regions such as Chiapas and Guerrero face lower investment, fewer job opportunities, and weaker public services, driving migration to urban centers or abroad.

The informal economy, employing nearly 55% of the workforce, exacerbates wealth gaps. Many workers lack access to social security, retirement savings, and legal protections. Street vendors, domestic workers, and day laborers often earn below the minimum wage, making financial stability difficult. This reliance on informal employment also limits tax revenue, reducing government capacity to fund poverty-reduction programs.

Impact of Trade Alliances

Mexico’s trade agreements, particularly the United States-Mexico-Canada Agreement (USMCA), shape its economic landscape. Preferential access to North American markets benefits industries such as automotive manufacturing, where companies like General Motors and Volkswagen operate large production facilities to capitalize on lower labor costs and geographic proximity to U.S. consumers.

Beyond North America, Mexico has free trade agreements with over 50 countries, including the European Union and Japan, reducing trade barriers and encouraging foreign direct investment (FDI). This has spurred job creation and technology transfer, strengthening industries like aerospace and electronics.

However, trade dependence carries risks. Mexico’s economy is vulnerable to U.S. economic slowdowns, supply chain disruptions, and shifts in global trade policies. The COVID-19 pandemic exposed these weaknesses as factory shutdowns and transportation bottlenecks disrupted exports. Geopolitical tensions and protectionist policies in major economies also threaten Mexico’s trade-driven growth, making market diversification increasingly important.

Government Revenue Structure

Mexico’s government revenue relies heavily on tax collection and income from state-owned enterprises, particularly in the energy sector. The country has one of the lowest tax-to-GDP ratios among OECD nations, at approximately 16.5% in 2022. Widespread tax evasion and informality hinder revenue collection. The Servicio de Administración Tributaria (SAT), Mexico’s tax authority, has tightened enforcement through electronic invoicing and stricter audits, but compliance gaps remain.

A significant portion of public revenue comes from the state-owned oil company, Petróleos Mexicanos (Pemex). Historically, Pemex contributed up to 30% of government income, but declining production and mounting debt have reduced its reliability. To stabilize finances, the government lowered Pemex’s profit-sharing duty from 65% in 2019 to 40% in 2022. However, this shift increases reliance on non-oil tax revenues, particularly value-added tax (VAT) and corporate income taxes.