Institutional Divergence in Petrochemical Industry of Mexico and Taiwan: Combined Effect or Failure of State Intervention and Liberal Marketization?

This paper examines the shift from interventionist state to market-led growth in petrochemical industry for both Taiwan and Mexico since 1980s, which leads to the formation of mixed –market economies (MME) in these two countries. Despite the similarity, Taiwanese petrochemical industry demonstrates a backward and forward linkage in a full scale of privatization, whereas Mexico comes to a rupture in backward linkage and importing a large quantity of immediate chemical products with huge trade deficit while implementing privatized contractors.

This paper argues that despite the transition of state policy from interventionism to neo-liberalism in the 1980s, the differences in economic performance of these two countries’ petrochemical industries are determined by the different kind of market institutions-building and state-business collaboration, a result of respective path dependence in Taiwan and Mexico.

The initial finding shows that the Mexico’s model of state-business coordination via “PEMEX and contractors” and strategic alliance have failed to create incentives for public-private partnership as well as attract investment due to state ownership of oil in the upper stream and oligopoly among big corporations dominated by a few business groups in the middle stream of Mexican petrochemical industry. By contrast, in Taiwan’s case the effectiveness of state intervention lies in developing a state-business co-evolution model, featuring not competing with business but rather complementing to business needs in the market. It seems that the continuity of state intervention in Taiwan has penetrated into the era of neo-liberalism, while lacking monopoly and oligopoly in Mexican case.