The Inequality Trap and its Links to Low Growth in Mexico

The paper discusses the relationship between structures of inequality and economic policies and institutions in Mexico. It argues that in a number of areas, suboptimal policies and institutions from an efficiency and growth perspectives are products of unequal structures. It focuses on two areas of unequal structures: concentrated wealth in the business sector and unions in protected sectors, the heritage of corporatist institutional arrangements. The paper surveys some of the dimensions of advantage of the groups involved, and presents suggestive empirical evidence on their influence on policy. It argues that these unequal structures have persisted through economic liberalization and political democratization in Mexico, sustaining the suboptimal policies and institutions that lie at the core of the disappointing growth performance. This suggests that policy design will need to take account of structural inequalities if growth-related reforms are to be successful.