The Great Depression is commonly regarded as a period of acute economic and social distress, particularly with regard to the United States and most of Europe. However, economic conditions were not as difficult for various other countries in spite of a very strong foreign impact to their economies. In contrast to the standard historiography, I believe that Mexico belongs to the latter group. Indeed, this work asserts that Mexico was capable of industrializing fairly rapidly during the 1930s in much the same way as were Argentina, Brazil and other countries in Latin America. Specifically, industrial output grew at a real annual rate of around 4 percent in the decade, a substantial figure given the difficult economic and political situation.

Which forces at work allowed such a performance in the face of a substantial drop in export earnings and the terms of trade? First of all, the government engaged in a quite flexible economic policy. In particular, the authorities took countercyclical monetary and fiscal policies by which aggregate demand was able to remain at a high level: the money supply was autonomously increased, budget deficits were run, and the exchange rate was repeatedly allowed to float and depreciate. In turn, the lower value of the currency made the price of imported commodities increase relative to those of import-competing domestic goods. Consequently, consumers shifted their demands from foreign to domestic commodities, a fact which translated itself into a process of import substitution. Indeed, 37 percent of the total growth in the decade was caused by the substitution of imports. Finally, on the supply side, excess installed capacity inherited from the 1920s in some key industries, as well as a rapid process of investment in response to higher profit rates, made possible the rapid growth of output to meet the increasing demands. In addition, the government engaged in the building of economic infrastructure, particularly roads, which had important effects on the productivity of the economy as a whole and especially the industrial sector. These results not only challenge the current view of the 1930s' economic history but also invite a reconsideration of the immediate previous and subsequent periods.