Productivity and long term growth
Going for Growth 2014: Mexico
Mexico demonstrated good resilience during the crisis, with growth in GDP per capita stronger over the 2006-2011 period than the earlier 5-year period. In order to maintain growth rates that are sufficiently robust to continue narrowing the income gap vis-à-vis advanced countries a number of growth bottlenecks need to be addressed. These include infrastructure shortfalls, pervasive state control in business activities and uneven access to quality education. A better balance in social protection is also needed to foster job creation in formal sectors.
Click to READ
Previous Going for Growth recommendations include:
- Raise education achievement to accelerate productivity gains and decrease high inequality.
- Reduce job protection on formal contracts, the stringency of which hurt productivity growth and aggravate informality, also harming equity.
- Reduce barriers to foreign direct investment in order to enhance trade, investment and technological upgrading.
- Weaknesses in the legal system hurt efficacy of contracts and the security of property rights, reducing firm size and investment, therefore improvements in the rule of law are needed.
- Reduce barriers to entry and competition to stimulate productivity and formal-sector employment, as anti-competitive product market regulation, costly registration procedures and lack of contestability in key network sectors exert a drag on growth.
An important reform agenda has been adopted thanks to a cross-party support of Pacto por Mexico. Under these areas, and in line with the recommendations, notable reforms over the past two years include:
- A potentially important reform of the energy sector has been approved last year, allowing for private investment and ending the state monopoly in oil and electricity. This year, a number of secondary legislation needs to be passed. To ensure effective implementation, an efficient regulatory framework needs to be established, with new terms for private (including foreign) investors fully spelled out.
- A reform of telecoms and related sectors has been passed, opening wireless, fixed-line, satellite and media sectors more substantially to FDI and establishing a new telecoms and communication authority, charged with enforcing competition. In addition, the financial reform opened the insurance and leasing sectors to FDI
- An introduction of national standards for primary and secondary teacher performance, including an evaluation system and the professionalization of the training and selection of school principals.
- A labour reform that eased the stringency of job protection for formal employment that has the potential to reduce informality. New contracts allow for more flexibility in wage adjustments, also reducing judicial uncertainty.
The report also discusses the possible impact of structural reforms on other policy objectives (fiscal consolidation, rebalancing the current account and reducing income inequality). In the case of Mexico, both the education and labour market reforms should help to reduce inequalities.