Why Mexico has not become more prosperous—and how it could

ONE of the main reasons for the landslide victory of Andrés Manuel López Obrador, a left-winger, in this month’s presidential election in Mexico was the country’s mediocre economy. Between 1995 and 2015 real GDP per person increased by an annual average of 1.2%, less than in any Latin American country except Venezuela (see chart). Take into account the swelling labour force, and Mexico looks even worse: GDP per worker expanded by just 0.4% a year, while total factor productivity (a measure of the economy’s efficiency) barely grew. What makes this puzzling is that Mexico has embraced economic orthodoxy: sound monetary and fiscal policy, open trade, investment in education and, more recently, improved competition policy.

So what went wrong? In a groundbreaking book* Santiago Levy, the outgoing policy chief at the Inter-American Development Bank, argues that Mexico’s decision-makers have failed to fix distortions in the economy caused by the tax regime, social policy and legal institutions, and in...Continue reading

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