Over the last two decades Mexico has maintained a stable macroeconomic environment, has made major efforts to integrate into the world economy, has invested heavily in education, has raised the investment rate, and has enjoyed the benefits of a demographic bonus but, with the exception of Venezuela, is the economy that has grown the least in Latin America. Why has an economy that has done so many things right failed to grow fast? Under-Rewarded Efforts traces Mexico’s disappointing growth to flawed microeconomic policies that have suppressed productivity growth and nullified the expected benefits of Mexico’s reform efforts. The book makes use of detailed firm level data to show that the allocation of resources has worsened as a result of dysfunctional firm dynamics. The book argues that large misallocation has depressed the returns to education and the returns to experience. It identifies major flaws in Mexico’s labor, social insurance, tax and contract enforcement policies, and argues that fast growth will only result from inclusive institutions that effectively protect workers against risks, redistribute towards those in need and simultaneously align entrepreneurs’ and workers’ incentives to raise productivity.
This lecture is co-sponsored by Center on Global Economic Governance and MPA-Economic Policy Management
