The economic and political histories of Spain and Mexico show a lot of parallels between the challenges and the developments that have taken place. The levels of economic development in Spain and Mexico during the early 19th century were similar to those of many other regions but the two countries were left behind in the economic development as compared to other countries in their category. Many of the economies that had stagnated during the first industrial revolution started to grow in the late 19th century, but Spain and Mexico struggled in the implementation of key institutional reforms that were required for economic growth. Although some other countries also faced problems in their economic development, Spain and Mexico experienced more serious and similar institutional setbacks. These setbacks were related to the legal system, political risk, development of human capital and openness to trade. Mexico was colonized by Spain, and thus the two countries had a lot of similarities in their political and legal systems that influenced their economic growth.
The economies of Spain and Mexico were affected by uncertainties created by the use of civil law system that persisted up to the 19th century. The civil law system was characterized by confusion and miscommunications as the crown insisted on obedience to written law and on the development of more written laws to govern the people. Efforts to codify the written laws by lawyers and judges often ended in failure. Although some countries that used the civil law system experienced high economic growth from the 18th century, three characteristics of the Spanish and Spanish colonial legal systems made production and transactions more risky and costly to both the merchants and the ordinary population. These characteristics are: a centralized justice system that accommodated both the Spanish crown’s political principles and the local customs and precedents; use of written laws, regulations and decrees that specified required behavior; and the crowns tendency to grant relief to some corporate entities based on moral and economic factors. In the late 18th century, there were changes in the civil law system in which special tribunals were formed to adjudicate cases involving litigants belonging to specific corporate entities. The changes were meant to improve efficiency and reduce legal costs in settling legal disputes between the litigants. Although some of the major participants in the economy, such as the miners, benefitted from the special tribunals, there were new challenges to the jurisdiction of the tribunals as each corporate entity believed the cases would be treated better by certain tribunals than others. Basically, the administration of justice in Spain and Mexico was very slow, uncertain and extremely costly to litigants when compared to other countries that used common law system or uniform principles on commercial interests.

The political systems in Spain and Mexico were ineffective in dealing with fiscal, monetary and political instabilities that existed up to the 20th century when compared to other political systems such as the one used in England and British colonies. In England, the political system made it difficult for the monarch to impose arbitrary tax, default on debt payment, debase currency and expropriate private property thus forcing the real interest rates on public debt and private lending to remain low. On the other hand, Spain and its colonies maintained a rigid fiscal system that was designed to protect the interest of the crown. Spain was involved in a number of international wars that created pressure on government spending, but the political system made it difficult for the government to adjust the fiscal system. The government imposed high direct taxes on internal commerce and urban consumers. The measures taken by the government interfered with the development of capital markets, the banking system, and commercial houses. Even after independence, Mexico faced a similar problem as Spain in reforming the tax system as it was largely based on private interests and the Church. The fiscal system moderated in Mexico in the 1870s after the restoration of the Republic and in 1875 in Spain after the restoration of the monarchy. However, the long period of fiscal crisis led both governments into bankruptcy and repeated defaults on debt payments. In general, the political system in Spain and Mexico prevented the development of financial and credit systems for a long time. The government resulted to debasing of currency as a way to raise revenues and thus caused more uncertainty in the capital markets.

Spain and Mexico lagged behind in the development of human capital when compared to other North Atlantic economies. Researchers suggest that the highest threshold of the relation between economic development and literature on education is realized when the literacy level is between 30% and 70%. Although Spain was among the first countries to achieve a literacy level of 30% in the 19th century, it took too long for it to achieve 70%. Spain achieved a literacy level of 30% by 1880, several decades after other countries such as the United States and the UK, but took very long to achieve a literacy rate of 70%. Mexico achieved a literacy rate of 30% by 1920 and it also took very long to achieve 70% when compared to the USSR. The USSR achieved a literacy rate of 30% in 1920 and a literacy rate of 70% in 1940, three decades before Mexico. Both Spain and Mexico demonstrated a lack of political will to invest in human development through education. The slow rate of development in human capital affected the rate of economic growth in both Spain and Mexico.

Spain and Mexico share a lot of similarities in their openness to trade from the 18th to 20th century. Both countries had low development in their inland transport system, and their main commodities of export were several miles from a seaport. The export trade in these countries was faced with transportation challenges prior to the railroad. Thus, despite the availability of valuable commodities for export by Spain and Mexico, these countries were limited in their participation in the foreign trade during the 18th and 19th centuries. Statistics show that the value of exports in Spain and Mexico to the total amount of their GDP were less during peacetime as compared to the value of export by countries such as the Britain during wartime. The poor performance by Spain and Mexico in foreign trade during peacetime made it very difficult for the countries’ economy to recover during independence and civil wars. Apart from the challenges in the foreign trade, Spain and Mexico implemented protectionist policies in trade during the 19th and 20th centuries. These policies were meant to protect the domestic producers in agriculture and industrial products. However, both countries experienced a period of significant development in their foreign trade.

In conclusion, the economic development in both Spain and Mexico show parallels because of their similarities in their institutions. The legal and political systems in Spain and Mexico were similar and provided similar challenges that were related to uncertainties and risks in the business environment. The systems interfered with the development of financial and credit systems due to lack of standard principles of trade in the commercial market. The economic development was also affected by poor development of human capital and foreign trade. Both governments demonstrated lack of political will in improving the literacy levels and export trade during the 19th and 20th centuries.