Background

The Mexican economy has improved over the last decade and extreme poverty has been reduced, but the economy has not grown fast enough to generate a significant number of jobs. Real GDP per capita grew by only 1.2 percent a year between 1994 and 2004. In contrast, GDP per capita grew by 3.3 percent in Chile, 7.7 percent in China, and 5.9 percent in the East Asia and Pacific region as a whole.

Productivity growth has also been disappointing and Mexico has been losing its share of the U.S. import market, mainly to China. In addition, various indicators of competitiveness show that Mexico is lagging behind, especially relative to per capita income.

All of these results point to an urgent need to enhance competitiveness in Mexico if the country is going to further reduce poverty. The World Bank is supporting this goal through a three-phase Programmatic Competitiveness Development Policy Loan (DPL).

Program Objective

To support institutional and policy reforms that will increase competitiveness and productivity in Mexico.

Program Design

The loan supports the following main activities:

a) promoting technological innovation, and improving training and education levels of the workforce;

b) reducing the cost of doing business, making it easier to open a new business, and strengthening economic competition;

c) streamlining trade procedures, lowering trade costs; simplifying customs clearance and improving the quality of port services;

d) improving transparency and introducing regulatory instruments for the energy sector.

Expected impacts

• Measures aimed at reducing the cost of opening a business are expected to reduce fixed costs and the burden of bribery.
• Regularizing businesses should increase local government revenues and provide the fiscal space for municipalities to increase social investments.
• Improved application of the anti-trust law at the local level will help improve the business environment and market opportunities for small businesses.
• More efficient customs and ports will reduce corruption and allow businesses to speed up delivery times.
• The level and quality of jobs for skilled labor will improve.
• Increased trade is expected to bring long-term benefits in terms of competitiveness, economic growth, and job creation.
• In the energy sector, more transparency and accountability should help improve the efficiency and quality of service delivery.