Productivity and long term growth

Going for Growth 2016: Mexico

 

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‌Following several years of modest growth, Mexico needs to adapt to new sources of growth to continue catching up with advanced economies. As the productivity gap with advanced OECD countries remains large, Mexico needs to step-up investment in knowledge-based capital, improve resource allocation and encourage a more widespread development of skills and human capital.  This would help notably to further increase the value-added that Mexican firms draw from their relatively high integration in global value chains (GVCs) as assemblers of final products.

Note: The index of GVC participation consists of Backward participation, which is the share of foreign value-added embodied in a country’s exports, and Forward participation, which is a country’s value-added embodied in other countries’ exports, as the share of its exports. The backward participation tends to be higher for small countries or those engaging heavily in assembly of final goods (ex: China, Mexico and some central European countries). The Forward participation tends to be higher for countries exporting natural resource and base material (ex: Norway or Australia) and those participating in GVC as providers of core components (ex: USA or Japan).

Source: OECD-WTO Trade in Value Added Database (TiVA), October 2015.

Previous Going for Growth recommendations include:

  • Raising education achievement by implementing the new national standards for primary and secondary teacher performance, the new teacher evaluation system, and by professionalising the training and selection of principals.
  • Strengthening innovation policies by promoting early-stage financing and industry co-operation with research institutes.
  • Reducing barriers to foreign direct investment by opening up transport and banking to FDI and establishing a regulatory framework that provides an attractive and competitive market for private investors in the energy sector.
  • Improving the rule of law by improving the accountability and professionalism of the judicial sector.
  • Promoting firm entry and competition by further lowering barriers to entry for start-ups, especially at the state and local levels.

 

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Recent policy actions in these areas include:

  • Implementation of the new national standard for primary and secondary teacher performance, in spite of a delay in some states. Issuance of Educational Infrastructure Certificates which complement public investment in improving school infrastructure.
  • The recently approved Productivity and Competitiveness Law, and the launch of a National Entrepreneur Fund should help to foster productivity and innovation in small and medium enterprises.
  • Implementation of the License and Production Sharing Contracts in the energy sector. Mexico is also opening up the insurance and telecom industries to FDI, and has created new financial instruments (FIBRA E) to promote energy investment.
  • Mexico passed its new anti-corruption framework and accelerated the implementation of a new justice system at the state and federal levels.
  • The launch of a one-stop website for Government services, information and citizen participation (Gob.mx), which is expected to reduce the administrative burdens of start-ups.

The report also discusses the possible impact of structural reforms on other policy objectives (fiscal consolidation, narrowing current account imbalances and reducing income inequality).  In the case of Mexico, improving educational achievement would foster human capital accumulation and reduce the degree of earnings inequality.

Economic Policy Reforms 2016 

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