Mexico is advancing at a mediocre pace decades, despite various structural reforms that were implemented between 1985 and 1994. This poor performance has sparked interest within and outside the country.
A recent example is the December 2010 Journal of Economic Literature, which featured two articles about Mexico ("Why Mexico Is not Rich?" Written by Gordon H. Hanson, and "Why Have Economic Reforms in Mexico Not Generated Growth? " by Timothy J. Kehoe and Kim J. Ruhl).
These papers raise crucial questions and findings, while not definitive, agree on the most visible obstacles to the growth of our country. The items are similar, so I mention the former.
Hanson said that the economic reforms during the 1990s succeeded in their macroeconomic and financial stability, but have failed to generate an accelerated rate of economic growth. A comparison with other countries shows a grim picture.
The lag of Mexico, says Hanson, is not explained by institutional weaknesses that it shares with the rest of the Latin American region where some countries have managed to grow rapidly. Nor is explained by the increasing violence associated with crime, as it became more evident after 2006, too late to explain the country's economic morass.
Hanson believes that our low growth is due to deep structural impediments, rather than short-term problems, such as the overvaluation of the peso would . He reviews several studies on the subject, several Mexican authors to conclude that our problems are due to internal factors such as inefficient credit markets, distortions in the provision of non-tradable inputs, and perverse incentives that encourage informality and slow productivity growth.
Credit is crucial for economic development. A country can not take advantage of opportunities for productive investments if there are no effective mechanisms to shift resources from creditors to debtors.
A growing number of studies mentioned the weakness in credit markets in Mexico as an important factor behind the low growth in productivity. The author notes that a problem has been the risk of expropriation and other poor monitoring of bank credit. The financial reforms that followed the crisis of 1994-95 improved regulations, but did little to stimulate commercial credit.
Hanson concluded that the main reason for this lag is the difficulty creditors to be made of the assets of debtors , despite the new Bankruptcy Act, which in practice does not provide adequate protection to rights creditors.
regard to the provision of non-tradable inputs, Hanson notes that Mexico stands out as having high electricity prices , high prices for telecommunications services and a shortage of skilled labor, due to poor public schools and regulations and labor market rigidities . This author emphasizes
that poor educational performance in Mexico can be attributed to the capture of the education system by the teachers union . About 90 percent of spending on education in Mexico is going in compensation to staff, leaving little for buildings, computers and other educational infrastructure.
Regarding informality, Hanson mentioned that there is evidence that increased social security coverage for informal workers increases employment in the informal sector. Therefore, social protection programs in Mexico may be increasing incentives for informality, possibly limiting growth.
Kehoe's article and Ruhl came to similar conclusions, identifying barriers to growth as the existence of inefficient financial institutions, weak rule of law and labor market rigidities .
Based on these studies, what kind of reforms Mexico needs to apply to resume rapid growth? In principle, improve the operation of the financial system, strengthen the rule of law, limiting the power of public unions and formalize and labor market flexibility . It also needs to boost productivity growth through greater competition in oil, electricity, telecommunications and transport.
These reforms do not differ from that for years have been proposed in the country. The real issue is, therefore, that our politicians have not had the ability or willingness to implement them , and there is no reason to believe that that will change in the near future.
Salvador Kalifa
salvadorkalifa@prodigy.net.mx
A recent example is the December 2010 Journal of Economic Literature, which featured two articles about Mexico ("Why Mexico Is not Rich?" Written by Gordon H. Hanson, and "Why Have Economic Reforms in Mexico Not Generated Growth? " by Timothy J. Kehoe and Kim J. Ruhl).
These papers raise crucial questions and findings, while not definitive, agree on the most visible obstacles to the growth of our country. The items are similar, so I mention the former.
Hanson said that the economic reforms during the 1990s succeeded in their macroeconomic and financial stability, but have failed to generate an accelerated rate of economic growth. A comparison with other countries shows a grim picture.
The lag of Mexico, says Hanson, is not explained by institutional weaknesses that it shares with the rest of the Latin American region where some countries have managed to grow rapidly. Nor is explained by the increasing violence associated with crime, as it became more evident after 2006, too late to explain the country's economic morass.
Hanson believes that our low growth is due to deep structural impediments, rather than short-term problems, such as the overvaluation of the peso would . He reviews several studies on the subject, several Mexican authors to conclude that our problems are due to internal factors such as inefficient credit markets, distortions in the provision of non-tradable inputs, and perverse incentives that encourage informality and slow productivity growth.
Credit is crucial for economic development. A country can not take advantage of opportunities for productive investments if there are no effective mechanisms to shift resources from creditors to debtors.
A growing number of studies mentioned the weakness in credit markets in Mexico as an important factor behind the low growth in productivity. The author notes that a problem has been the risk of expropriation and other poor monitoring of bank credit. The financial reforms that followed the crisis of 1994-95 improved regulations, but did little to stimulate commercial credit.
Hanson concluded that the main reason for this lag is the difficulty creditors to be made of the assets of debtors , despite the new Bankruptcy Act, which in practice does not provide adequate protection to rights creditors.
regard to the provision of non-tradable inputs, Hanson notes that Mexico stands out as having high electricity prices , high prices for telecommunications services and a shortage of skilled labor, due to poor public schools and regulations and labor market rigidities . This author emphasizes
that poor educational performance in Mexico can be attributed to the capture of the education system by the teachers union . About 90 percent of spending on education in Mexico is going in compensation to staff, leaving little for buildings, computers and other educational infrastructure.
Regarding informality, Hanson mentioned that there is evidence that increased social security coverage for informal workers increases employment in the informal sector. Therefore, social protection programs in Mexico may be increasing incentives for informality, possibly limiting growth.
Kehoe's article and Ruhl came to similar conclusions, identifying barriers to growth as the existence of inefficient financial institutions, weak rule of law and labor market rigidities .
Based on these studies, what kind of reforms Mexico needs to apply to resume rapid growth? In principle, improve the operation of the financial system, strengthen the rule of law, limiting the power of public unions and formalize and labor market flexibility . It also needs to boost productivity growth through greater competition in oil, electricity, telecommunications and transport.
These reforms do not differ from that for years have been proposed in the country. The real issue is, therefore, that our politicians have not had the ability or willingness to implement them , and there is no reason to believe that that will change in the near future.
Salvador Kalifa
salvadorkalifa@prodigy.net.mx
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still needed deep structural reforms, including labor, as well as a frontal attack on the informal (tax reform) and zero public monopolies (energy reform, open energy sector ) and private (mainly communications, telecommunications reform), in addition to educational reform. All remaining tasks of the Congress. And we saw with the recent freezing of the proposed labor reform and policy by the PRI, who are opposed to changes in Mexico. PRI does not care to be given structural reforms because such reforms would end up with estates of power, with access to large sums of money from the Treasury via the trade unions and monopoly (PEMEX and CFE). Reflect on it.
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