Economics Department

Economic Survey of Mexico 2009: Pedal to the metal: structural reforms to boost long-term growth and spur recovery from the crisis

 

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The following OECD assessment and recommendations summarise chapter 4 of the Economic Survey of Mexico published on 30 July 2009.

 

Contents

 

Mexico’s living standards are catching up only slowly

Though improving, the growth performance in Mexico over the past 20 years has been disappointing when compared to other emerging markets, reflecting mainly weak labour productivity growth, which was slightly negative over the period. A breakdown by industry shows that the poor performance was broad based -- the weak relative performance of productivity applies to about 80% of total employment. Growth in Mexico has relied more on the accumulation of production factors, notably the utilisation of labour resources, than on rising productivity. By contrast, the better performing countries, such as Chile and Turkey exhibit an “intensive” growth path, with a greater reliance on high labour productivity growth rates. However, breaking down Mexico’s performance into 5 year periods reveals a more encouraging story, as productivity growth has increased continuously from each 5 year period to the next. Although productivity and per capita GDP growth rates have increased, they remain too low to allow rapid convergence with the high income OECD countries.

GDP per capita

1990 USD PPP's

Source: Angus Madison (2003), The World Economy: Historical Statistics.

Mexico’s slow catch up towards higher levels of incomes is mainly due to the lack of progress with some growth friendly structural reforms. OECD regulatory impact indicators show that Mexico is in many key sectors close to, or equal to, the maximum (negative) regulatory impact, and that Mexican productivity would be higher with less strict product-market regulation. The largest negative impact is in the network industries (electricity, gas and water) where Mexico’s product market regulation is much stricter than in most other OECD countries.

Structural reforms should continue to boost productivity growth

The recent significant reductions in import tariffs should help the economy take fuller advantage of trade and investment integration, which could be a relative strength for Mexico given its geographic location. Reforms introduced in the past two years, including those to promote competition and transparency in the financial sector and, to a lesser extent in telecommunications, will also stimulate the dynamism of the economy. Despite this progress, further reforms are needed to boost overall and within sector productivity. Relative weaknesses in education, infrastructure, financial development, the rule of law, trade integration and investment levels, especially in machinery and equipment, as well as a lack of competition arising from overly restrictive product market regulation and excessive state control come out in various studies as explaining why Mexico has not grown as fast as other countries. Science, technology and innovation policies can also be important over time as noted in the OECD Review of Innovation Policy in Mexico.

High priority should be given to structural reforms with rapid payoffs

There are certain structural reforms that can both help countries exit from the financial crisis and provide longer term growth benefits. Potentially rapid pay offs can be obtained from reforms in education and training, and from reducing entry barriers to business. These can boost demand by improving employment prospects and growth by enhancing future productivity. Increasing competition can bring gains to productivity over time, and recent efforts in this area should be continued without delay. The road, rail, port and telecommunication networks remain weak compared to those in its emerging market peers. In this context, the rise in infrastructure spending in the 2009 budget is welcome. The decision to conduct a broad review of existing regulatory policies is an important step towards reducing a key structural barrier to faster growth. There is scope for regulatory action to increase competition in the main network industries, electricity, gas, water, telecommunications and transport. Greater competition would also help safeguard gains of competitiveness from the lower exchange rate by containing price pressures.

 

How to obtain this publication

 

The complete edition of the Economic Survey of Mexico is available from:

The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.

 

Additional information

For further information please contact the Mexico Desk at the OECD Economics Department at eco.survey@oecd.org

The OECD Secretariat's report was prepared by Nicola Brandt, Cyrille Schwellnus and Tonje Lauritzen under the supervision of Patrick Lenain and Piritta Sorsa. Research assistance was provided by Roselyne Jamin.

 

 

 

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