Raising Mexico's potential

OECD Observer

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Mexico’s economic performance has improved, but not by enough, according to the OECD Economic Survey of Mexico released late last year. Since the 1995 financial crisis, Mexico has made progress in terms of economic stability, and the economy is far more open, too. But while poverty has fallen, it remains widespread.

Productivity is also low. True, GDP will grow by 4% or more for the third year in a row in 2006, the report expects. But although this is better than in several other OECD countries, it is barely enough to keep per capita living standards in Mexico rising at the same rate as the OECD average, let alone close the income gap with the more advanced economies.

How to raise potential growth and deliver that convergence are major challenges. A combination of faster growth in the quality of labour inputs, more and better physical capital, and more advanced technology are needed. The markets can deal with some of the issues, and the report praises reforms of recent decades, even if it says that labour and product markets could be further liberalised. But the government must also act on several fronts, to improve human capital for instance, notably by lifting performance in Mexico’s education system, which has been among the OECD’s laggards, and strengthening the country’s public finances, including at sub-national level.

OECD Economic Survey of Mexico (2005) can be ordered at www.oecd.org/bookshop, ISBN 92-64-01340-7.

©OECD Observer No 254, March 2006

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