Pedal to the Metal: Structural Reforms to Boost Long-Term Growth in Mexico and Spur Recovery from the Crisis

While Mexico’s growth performance has gradually improved over the past decades, its convergence toward OECD countries has been less rapid than in several other emerging markets. 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, as well as a lack of competition come out in various studies as explaining why Mexico has not grown as fast as other countries. Focusing attention now on reforms in areas with rapid pay-offs such as improving competitiveness and infrastructure could yield double benefits in supporting the recovery from the current recession and longer-term growth. This can be achieved by increasing competition, especially in network industries, liberalizing further the foreign investment and trade regimes, and improving education coverage and trade-related infrastructure.