Assessing The Foundations of Mexico's Competitiveness

Assessing the Foundations of Mexico's Competitiveness:
Findings from the Global Competitiveness Index 2007-2008
White Paper
Irene Mia, World Economic Forum

Emilio Lozoya Austin, World Economic Forum
Assessing the Foundations of Mexico's Competitiveness: White Paper © 2008 World Economic Forum
80740_Couv:Mise en page 1 8.4.2008 13:03 Page 2
Contents This paper is published by the World Economic Forum within the framework of the Global
Competitiveness Network.
Professor Klaus Schwab

Part I: Assessing the Foundations of Mexico’s Competitiveness: Findings from the Global Executive Chairman
Competitiveness Index 2007-2008 3
by Irene Mia and Emilio Lozoya Austin (World Economic Forum) The Global Competitiveness Network:
Fiona Paua, Senior Director, Head of Strategic Insight Teams
Part II: Country Profiles 29 Jennifer Blanke, Director, Senior Economist

Ciara Browne, Senior Community Manager
List of Countries 31 Agustina Ciocia, Coordinator
Margareta Drzeniek Hanouz, Associate Director, Senior Economist
How to Read the Country Profiles 33
Thierry Geiger, Economist
Mexico Competitiveness Profile 37 Irene Mia, Associate Director, Senior Economist
Comparator Countries Competitiveness Profiles 43 Pearl Samandari, Research Assistant
Eva Trujillo Herrera, Research Assistant
The Regional Agenda Team, Latin America:
Julio Estrada, Associate Director, Global Leadership Fellow, Latin America

Antonio Human, Community Relations Manager, Latin America
Emilio Lozoya Austin, Head of Latin America, Global Leadership Fellow
Paula Verholen, Senior Community Relations Manager, Latin America
World Economic Forum

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Part I
Chapter 1 – Assessing the Foundations of Mexico's Competitiveness
CHAPTER 1 Mexico has come a long way since the “lost decade”
of the 1980s and the ensuing instability associated with
recurring financial crises.The country has emerged as
Assessing the Foundations the second largest economy in Latin America,1 after
Brazil, and as the region’s top destination for foreign
of Mexico’s Competitiveness: direct investment (FDI) in 2006.2
Since the 1995 “Tequila” crisis that rocked the
Findings from the Global country’s financial and exchange markets, Mexico has
Competitiveness Index made significant progress toward establishing a solid
macroeconomic foundation for sustained growth. It
adopted an effective stabilization program that included
IRENE MIA, World Economic Forum
the restructuring of its external debt, a prudent monetary
EMILIO LOZOYA AUSTIN, World Economic Forum
policy, and a flexible exchange rate.These were coupled
with the privatization of important companies. One
result has been single-digit inflation (3.6% in 2006).
Public debt and the current account deficit both stand
at manageable levels -20% and 0.2% of gross domestic
product (GDP).The government even enjoys a modest
budget surplus (0.11% of GDP in 2006).
Also, Mexico has started to leverage its unique
geographic position between two oceans and between
North and South America.With an already large internal
market of over 100 million people,3 it has entered into
an extensive network of trade agreements that provide
preferential access to markets that include North America,
Japan and Europe.The North American Free Trade
Agreement (NAFTA), which established a free trade 3
area between Mexico, the United States and Canada,
helped triple intra-regional trade during the first decade
after it took effect in 1994.4 NAFTA has significantly
contributed to the diversification of Mexico’s productive
and export structure, especially thanks to the maquiladora
system of assembly factories and increased FDI.The
United States accounted for 84.7% and 50% of Mexican
exports and imports, respectively, and Mexico’s exports
consisted mainly of manufactured products (81% of
total) in 2006 according to the Economist Intelligence
Unit (EIU).
Notwithstanding these achievements and positive
developments, Mexico does not display the same dynamism
in terms of growth rates as other leading emerging
markets such as India and China. Annual GDP growth
rates in Mexico averaged 2.8% from 2002 to 2006,
unimpressive compared to 10.1% and 7.8% for China
and India, respectively, for the same period.5 Mexico’s
economy continues to appear particularly vulnerable to
external downturns, given its close association with the
US business cycle and the heavy dependence on oil
revenues to fund the public sector.The slowdown of the
US economy sparked by the recent sub-prime mortgage
crisis will likely stunt Mexico’s growth, now forecast at
1.9% for 2008 and 3% for 2009.
The authors would like to thank Eva Trujillo Herrera for her excellent research assistance
for this paper.
Chapter 1 – Assessing the Foundations of Mexico’s Competitiveness
The Mexico Competitiveness Report 2008 will try to • Goods market efficiency: the extent of domestic
cast some light on the impediments to Mexico’s growth and foreign competition in a given market and the
and sustained competitiveness. It aims to provide a neutral quality of demand conditions;
platform for dialogue among policymakers, business • Labor market efficiency: flexibility of the labor
people and other relevant stakeholders and help them market and whether it ensures the efficient use of talent;
identify effective policies and strategies that will improve • Financial market sophistication: sophistication,
the country’s competitiveness and lead to lasting prosperity efficiency, soundness and trustworthiness of financial
for all Mexicans. In that spirit, this paper will assess the markets;
current state of Mexico’s competitiveness and its potential • Technological readiness: penetration of information
for sustained growth using the broad methodological and communication technologies (ICT) and the extent
framework offered by the Global Competitiveness Index to which countries leverage technology and knowledge
(GCI), developed for the World Economic Forum by from abroad (notably through FDI), by adopting and
Professor Xavier Sala-i-Martin of Columbia University. adapting it in their production systems;
Besides identifying the drivers of competitiveness, the • Market size: the size of the domestic and foreign markets;
GCI offers a unique tool that can help prioritize policies • Business sophistication: at the firm level, the
and actions according to a country’s specific stage of degree of sophistication of operations and company
development.Through the lens of the GCI, this paper will strategies and the presence and development of clusters;
take a comprehensive snapshot of Mexico’s competitive • Innovation: potential to generate endogenous innovation.
landscape and suggest areas that should be given priority
in the design of a national competitiveness strategy. The 12 pillars (analyzed in more detail in the following
The paper will start by briefly outlining the method- section) play a crucial role for all countries as drivers of
ological framework of the GCI. It will then assess Mexico’s competitiveness, but their importance differs according to
performance in the different pillars of competitiveness, each country’s stage of development. Different pillars affect
with a special focus on those factors considered crucial different countries in different ways.The elements driving
for the country given its stage of development. productivity, and therefore competitiveness, change as countries
move along the development path. Accordingly, the GCI
4 Introducing the Global Competitiveness Index classifies countries into three specific stages of development:
The World Economic Forum has been studying national factor-driven, efficiency-driven and innovation-driven.7
competitiveness for almost three decades. During that In the factor-driven stage, countries compete on the
period it worked with leading academics, always taking basis of their factor endowments, primarily unskilled
into account relevant new ideas, literature and evidence. labor and natural resources, and their economies are
Developed in cooperation with Professor Xavier Sala-i- centered on commodities and/or basic manufactured
Martin, an eminent growth economist from Columbia products. At this stage of development, competitiveness
University, the GCI was introduced in 2004.The index rests mainly on efficient and transparent public and private
provides a state-of-the-art methodological framework to institutions (pillar 1), well-developed infrastructure (pillar 2),
assess “the set of institutions, policies, and factors that determine good macroeconomic fundamentals (pillar 3), and a
the level of productivity of a country” and identifies a large healthy and literate labor force (pillar 4).
number of macro and microeconomic drivers of growth.6 As countries move up the development path to the
The GCI builds on the awareness that competitiveness efficiency-driven stage, productivity can be improved not
is an extremely complex phenomenon that cannot be only by fostering the efficiency of the factor markets but
explained by one or two causes; rather, competitiveness and also by improving the efficiency of production processes
sustained growth are determined by the interrelationships and practices at the firm level. Key factors include: higher
among several and diverse factors. Figure 1 shows the education and training (pillar 5), efficient markets for goods
12 pillars of competitiveness identified by the GCI and and services (pillar 6), flexible and well-functioning labor
listed below: markets (pillar 7), sophisticated financial markets (pillar 8),
• Institutions: fairness of public institutions, government a large domestic and/or foreign market that allows for
efficiency, security and its costs to businesses, and economies of scale (pillar 9) and the ability to leverage
corporate governance; existing technologies, notably ICT, in the production
• Infrastructure: quality and development of general system (pillar 10).
and specific infrastructure; In the third and most advanced -innovation-driven-
• Macroeconomic stability: quality of the macro- stage of development, countries cannot continue to grow
economic environment; if they simply rely on efficient markets and production
• Health and primary education: health of the popu- processes; they must start to compete by producing new,
lation and the quality of and access to basic education; unique value-added goods. At this point, the capacity to
• Higher education and training: quality of and access generate endogenous technology (pillar 11) and to use
to secondary and higher education and the effectiveness sophisticated production processes (pillar 12) becomes
of job training; critical.
Figure 1 The 12 Pillars of Competitiveness
Basic requirements
• Institutions Key for
• Infrastructure factor-driven
• Macroeconomic stability economies
• Health and primary education
Efficiency enhancers
• Higher education and training
• Goods market efficiency Key for
• Labor market efficiency efficiency-driven
• Financial market sophistication economies
• Technological readiness
• Market size
Innovation and sophistication factors Key for

• Business sophistication innovation-driven
• Innovation economies
Table 1 lists the 131 economies covered by the latest means quantitative factors, such as inflation rates, personal
GCI included in the Global Competitiveness Index 2007- computer penetration and life expectancy that are
2008 by stage of development.8 The countries falling collected by international organizations, including the
in between two of the three stages are defined as “in International Monetary Fund (IMF), the World Bank and
transition”. Mexico is currently placed in the efficiency- various United Nations agencies. Survey data capture 5
driven stage, together with regional neighbors Argentina, fundamentals that tend to be qualitative in nature and
Brazil, Costa Rica and Peru and other relevant countries for which hard data are often not available for a large
such as Russia,Thailand and Turkey. number of countries.They include crucial factors such
The GCI integrates the concept of development as the protection of property rights, independence of
stages in two ways: the judiciary and the quality of the educational system.
a) by organizing the 12 pillars into three subindexes, These data come from the Executive Opinion Survey,
according to their importance for each of the stages conducted by the Forum annually in more than 130
of development referenced above: pillars one to four economies that accounted for 98% of global GDP in
are considered basic requirements of competitiveness, 2007.10 For a detailed description of the more than 110
key for countries in the factor-driven stage but also variables included in the GCI, see Annex 1: Structure of
fundamental preconditions for any competitive economy; the Global Competitiveness Index 2007-2008 at the end of
pillars five to 10 represent efficiency enhancers, crucial this paper.
for economies in an efficiency-driven stage; pillars 11
and 12 are defined as innovation and sophistication An appraisal of Mexico’s competitiveness
factors and are considered particularly relevant for landscape through the lens of the Global
countries in the innovation-driven stage (see Figure 1). Competitiveness Index
b) by assigning a different relative weight to each subindex This section draws on the findings of the most recent
in the overall GCI computation according to the GCI, featured in the Global Competitiveness Report 2007-
specific development stage of a country.Table 2 provides 2008.To provide benchmarks relevant to Mexico’s
full details of the weighting of the subindexes based progress and challenges, comparisons will be made with
on stages of development.9 In the case of Mexico, for selected neighboring and/or relevant countries and
instance, the overall GCI score is the result of a regions;11 the GCI figures for Mexico for the last three
weighted average of the three subindexes, as follows: years will also be included.This analysis will provide a
40% for basic requirements, 50% for efficiency useful starting point from which to identify areas of
enhancers, and 10% for innovation and sophistication focus and corrective policies and actions.
factors. Figure 2 provides a snapshot of Mexico’s competi-
tiveness by pillar in the GCI for 2007-2008. Figure 3
The GCI builds on a combination of hard and survey highlights the evolution of the country’s performance
data in order to capture, in the most comprehensive way for 2005-07 in comparison only to economies included
possible, all determinants of competitiveness. Hard data in the 2005-06 sample.12
Table 1 List of economies by stage of development
Stage 1 Transition from 1 to 2 Stage 2 Transition from 2 to 3 Stage 3

Armenia Albania Algeria Bahrain Australia
Bangladesh Azerbaijan Argentina Barbados Austria
Benin Bosnia and Herzegovina Brazil Croatia Belgium
Bolivia Botswana Bulgaria Czech Republic Canada
Burkina Faso China Chile Estonia Cyprus
Burundi Colombia Costa Rica Hungary Denmark
Cambodia Ecuador Dominican Republic Malta Finland
Cameroon El Salvador Jamaica Qatar France
Chad Guatemala Latvia Slovak Republic Germany
Egypt Jordan Lithuania Taiwan, China Greece
Ethiopia Kazakhstan Macedonia, FYR Trinidad and Tobago Hong Kong SAR
Gambia, The Kuwait Malaysia Iceland
Georgia Libya Mauritius Ireland
Guyana Oman Mexico Israel
Honduras Saudi Arabia Montenegro Italy
India Tunisia Namibia Japan
Indonesia Ukraine Panama Korea, Rep.
Kenya Venezuela Peru Luxembourg
Kyrgyz Republic Poland Netherlands
Lesotho Romania New Zealand
Madagascar Russian Federation Norway
Mali Serbia Portugal
Mauritania South Africa Puerto Rico
Moldova Suriname Singapore
Mongolia Thailand Slovenia
6 Morocco Turkey Spain
Mozambique Uruguay Sweden
Nepal Switzerland
Nicaragua United Arab Emirates
Nigeria United Kingdom
Pakistan United States
Paraguay
Philippines
Senegal
Sri Lanka
Syria
Tajikistan
Tanzania
Timor-Leste
Uganda
Uzbekistan
Vietnam
Zambia
Zimbabwe
Table 2 Weights of the three subindexes per stage of development
Pillar group Factor-driven stage (%) Efficiency- driven stage (%) Innovation- driven stage (%)
Basic requirements 60 40 20
Efficiency enhancers 35 50 50
Innovation and sophistication factors 5 10 40
Figure 2 Mexico competitiveness performance at glance
GCI 2007-2008 ranks (out of 131 economies)
Labour market efficiency 92

Institutions 85
Higher education and training 72
Innovation 71
Financial market sophistication 67
Infrastructure 61
Goods market efficiency 61
Technological readiness 60
Health and primary education 55
Business sophistication 54
Macroeconomic stability 35
Market size 13
0 10 20 30 40 50 60 70 80 90 100
Source: World Economic Forum 2007
Figure 3 Mexico’s evolution in the GCI ranking, 2005-07
54
53
53
52
51
51
7
50
49
48
48
47
46
45
2005-06 2006-07 2007-08
note: ranks are in a constant 2005-06 sample
Tables 3 to 6 show rankings and scores for Mexico given Mexico’s stage of development. Indeed, as explained
and selected countries/regions in the overall GCI 2007- above, countries in the efficiency-driven stage derive
2008 as well as for each subindex and pillar. their competitiveness from efficiency enhancers and, to
Mexico ranked 52nd among 131 countries in the a slightly lesser extent, basic requirements. Accordingly,
most recent GCI computation (48th in the constant Mexico’s relatively poor 71st place in innovation is not
2005-06 sample, as shown in Figure 3). It placed among as worrisome as its 72nd place in higher education and
the most competitive economies in Latin America13 and training; the country can continue to grow without
better than four of the 10 countries in the comparative generating much endogenous knowledge but it must be
sample, namely Brazil (72nd), Russia (58th), Indonesia able to count on a pool of qualified and skilled labor to
(54th) and Turkey (53rd). In addition, Figure 3 shows respond to its current challenges.
how Mexico’s competitiveness has been following an The rest of this section will focus on Mexico’s
encouraging upward trend over the last three years, with performance in the three subindexes of the GCI and
an improvement of five positions. will assess its main shortcomings in each area.
Nevertheless, Mexico’s performance in each of the
12 pillars (Figure 2) reveals a series of important flaws. Basic requirements
These problems must be tackled if the country is to fulfill As described above, transparent institutions, a sound
its competitive potential. Rankings in labor market macroeconomic environment, well-developed infrastructure
efficiency (92nd), institutions (85th) and higher education and a healthy and literate workforce are basic requirements
and training (72nd) would seem particularly alarming for national competitiveness.They play a crucial role for
Table 3 GCI 2007-2008 and its sub-indexes: Mexico and selected countries/regions
Basic requirements Efficiency enhancers Innovation factors

Country/Region Rank Score Rank Score Rank Score Rank Score
Brazil 72 3.99 101 3.82 55 4.12 41 3.99
Chile 26 4.77 33 5.17 28 4.58 36 4.06
China 34 4.57 44 4.80 45 4.26 50 3.89
Hungary 47 4.35 55 4.54 40 4.34 43 3.98
India 48 4.33 74 4.22 31 4.52 26 4.36
Indonesia 54 4.24 82 4.14 37 4.43 34 4.10
Korea, Rep. 11 5.40 14 5.67 12 5.28 7 5.42
Russian Federation 58 4.19 68 4.36 48 4.19 77 3.50
South Africa 44 4.42 61 4.45 36 4.44 33 4.16
Turkey 53 4.25 63 4.44 51 4.16 48 3.90
Mexico 52 4.26 56 4.53 50 4.17 60 3.66
Latin America & the Caribbean average 3.89 4.18 3.72 3.42
OECD average 5.00 5.38 4.93 4.77
Table 4 Basic requirements: Mexico and selected countries/regions
Macroeconomic Health and Basic

Institutions Infrastructure stability primary education requirements
Country/Region Rank Score Rank Score Rank Score Rank Score Rank Score
Brazil 104 3.32 78 3.07 126 3.66 84 5.23 101 3.82
Chile 29 4.83 31 4.56 12 5.86 70 5.42 33 5.17
China 77 3.71 52 3.97 7 6.03 61 5.49 44 4.80
Hungary 54 4.14 54 3.93 107 4.22 41 5.86 55 4.54
8 India 48 4.32 67 3.45 108 4.21 101 4.92 74 4.22
Indonesia 63 3.90 91 2.74 89 4.59 78 5.31 82 4.14
Korea, Rep. 26 5.05 16 5.55 8 6.00 27 6.08 14 5.67
Russian Federation 116 3.10 65 3.48 37 5.35 60 5.51 68 4.36
South Africa 39 4.55 43 4.22 50 5.08 117 3.96 61 4.45
Turkey 55 4.13 59 3.68 83 4.66 77 5.31 63 4.44
Mexico 85 3.62 61 3.55 35 5.36 55 5.59 56 4.53
Latin America & the Caribbean average 3.56 3.18 4.63 5.33 4.18
OECD average 5.05 5.15 5.19 6.14 5.38
factor-driven economies but are also very important for interact to generate income and wealth in an economy.
efficiency-driven economies, accounting for 40% of Its efficiency and transparency bear strongly on produc-
their overall GCI score. tivity and growth.“Competitiveness-friendly” institutions
Placing 56th, Mexico clusters with countries like are ones that guarantee property rights and contract
Hungary (55th), South Africa (61st) Turkey (63rd) for enforcement and operate in a fair and efficient manner;
basic requirements. It largely outdoes Brazil (101st), they also stimulate entrepreneurship, maintain macro-
Indonesia (82nd), India (74th) and Russia (68th) and the economic stability, manage risk-taking by financial inter-
Latin American average (4.53 for Mexico vs. 4.18 for mediaries, provide social insurance and safety nets, and
the region), yet the gap between the country, the best enhance participation and accountability.The institutional
performers in the sample (Korea and Chile, ranked 14th framework is also a key determinant of how a society
and 33rd respectively) and the average for the Organization distributes the benefits and costs of development strategies
for Economic Cooperation and Development (OECD) and policies. It also influences investment decisions and
(5.38) highlights the magnitude of the challenge Mexico the way production is organized.
faces in its attempt to achieve first class institutions, In addition, fair and competent private institutions
infrastructure, literacy and public health standards and - have been long recognized by competitiveness experts and
to a lesser extent - stable macroeconomic fundamentals. practitioners as a relevant complement to public institutions
in generating an environment that is conducive to growth.
Institutions This includes, for example, the role of corporate ethics
The institutional environment provides the framework and transparent accounting and reporting practices in
within which individuals, firms, and the government maintaining investor and consumer confidence.
Table 5 Efficiency enhancers: Mexico and selected countries/regions
Higher education Goods market Labour market Financial market Technological Market Efficiency
and training efficiency efficiency sophistication readiness size enhancers
Country/Region Rank Score Rank Score Rank Score Rank Score Rank Score Rank Score Rank Score
Brazil 64 4.01 97 3.80 104 3.96 73 4.14 55 3.35 10 5.44 55 4.12
Chile 42 4.41 28 4.93 14 4.96 26 5.17 42 3.89 47 4.15 28 4.58
China 78 3.77 58 4.26 55 4.40 118 3.35 73 3.00 2 6.80 45 4.26
Hungary 33 4.64 59 4.26 58 4.36 51 4.64 41 3.91 41 4.26 40 4.34
India 55 4.13 36 4.66 96 4.07 37 4.93 62 3.17 3 6.16 31 4.52
Indonesia 65 4.00 23 5.06 31 4.74 50 4.65 75 2.99 15 5.17 37 4.43
Korea, Rep. 6 5.65 16 5.23 24 4.79 27 5.15 7 5.46 11 5.37 12 5.28
Russian Federation 45 4.33 84 3.94 33 4.70 109 3.60 72 3.03 9 5.54 48 4.19
South Africa 56 4.12 32 4.73 78 4.16 25 5.19 46 3.57 21 4.89 36 4.44
Turkey 60 4.05 43 4.54 126 3.60 61 4.40 53 3.39 18 4.97 51 4.16
Mexico 72 3.83 61 4.23 92 4.09 67 4.28 60 3.23 13 5.34 50 4.17
Latin America &
the Caribbean average 3.67 3.95 4.17 4.19 3.06 3.31 3.72
OECD average 5.16 4.99 4.66 5.25 4.81 4.72 4.93
Table 6 Innovation and sophistication factors: Mexico and selected countries/regions
Business sophistication Innovation Innovation and sophistication factors

Country/Region Rank Score Rank Score Rank Score
Brazil 39 4.48 44 3.50 41 3.99
Chile 32 4.65 45 3.48 36 4.06
China 57 4.18 38 3.60 50 3.89
Hungary 46 4.35 37 3.61 43 3.98
India 26 4.81 28 3.90 26 4.36
9
Indonesia 33 4.65 41 3.56 34 4.10
Korea, Rep. 9 5.47 8 5.36 7 5.42
Russian Federation 88 3.70 57 3.31 77 3.50
South Africa 36 4.61 32 3.71 33 4.16
Turkey 41 4.45 53 3.36 48 3.90
Mexico 54 4.22 71 3.11 60 3.66
Latin America & the Caribbean average 3.91 2.93 3.42
OECD average 5.07 4.47 4.77
The institutions pillar assesses both the quality of the Mexico’s institutions have plenty of room for improvement –
public and private institutions, devoting separate subpillars with one caveat: the pillar’s overall rank conceals important
to each, accounting for three-fourths and one-fourth of differences in the quality of the public and private insti-
the final pillar score respectively.The public institutions tutions; the former came in 89th place but the latter a
subpillar looks at a country’s general legal framework less worrisome 57th.
(including the extent to which property rights are Institutional reforms have played a subordinate role to
protected and enforced), public ethics standards, the economic ones in Mexico’s national debate and strategy
efficiency of public administration, and the overall level of until very recently. Some have questioned this since the
security (intuitively important to creating an environment rule of law and well-functioning and trustworthy institutions
where businesses can flourish). In turn, the private institutions are widely considered prerequisites for a vibrant market
subpillar includes elements of corporate ethics and economy. Similarly, many experts believe that economic
accountability. reforms should have been carried out in tandem with large-
Mexico ranked 85th for institutions, making this pillar scale institutional transformations in the medium term.14
the country’s second worst after labor market efficiency. Institutional weaknesses have undermined Mexico’s capacity
The country fares poorly on this item when compared to reap the full advantages of economic liberalization in
to the rest of the sample, outranking only laggards the past decade. Influential interest groups (monopolies,
Russia (116th), Brazil (104th) and China (77th).The quasi-monopolies and certain labor unions) have been able
distance between Mexico and Korea (26th), Chile (29th) to hijack the political process and capture most of the new
and South Africa (39th), as well as with the OECD wealth.This has fuelled discontent about the results of the
average (5.05, as opposed to 3.62 for Mexico), is striking. economic reforms among broad segments of the society.
The areas of concern in this pillar include: property drinking water and sanitation services. Hulten found
rights protection (77th),15 and weak ethical standards in that approximately 40% of the growth differential
the public sector (87th).The latter is also reflected in a between low and high growth countries can be traced
very low trust of politicians (91st) and in the perceived to differences in the effective use of infrastructure.20
favoritism in decisions made by government officials In the 1990s, Mexico made important progress in
(90th). Red tape and inefficiencies remain important upgrading and extending its infrastructure, especially in
hindrances. Security is considered a problem, with the terms of improved access to water and sanitation, elec-
country ranked 118th - Mexico’s worst showing on any tricity and communications; however, relative to compa-
umbrella item. Contributing factors included rampant rable countries it lost ground except in water and access
organized crime (120th), violence (119th), and a low to basic sanitation.21 Mexico follows a trend observed
level of trust in the police (119th).These factors are for the rest of Latin America: it is estimated that the
believed to impose significant costs to businesses. Indeed region would need to invest up to 6% of GDP in infra-
violence has been on the rise, both in traditional drug- structure catch up with Korea and keep up with China.22
trafficking centers and other areas. In response, one of This mixed performance is reflected in the 61st
President Felipe Calderón’s first actions after being ranking (score of 3.55) registered by Mexico in the
sworn in on December 1, 2006 was to deploy 24,000 infrastructure pillar. It places ahead of the Latin American
soldiers to hot spots. An underlying problem is the average (3.18) and countries such as Indonesia (91st),
country’s extremely weak criminal justice system. Brazil (78th) and India (67th) but well behind the top
Studies have shown that the probability of being arrested performers in the sample, Korea (16th) and Chile (31st),
and brought before a judge after committing a crime is and the OECD average (5.15). In particular, the quality
3.3%.16 Of all crimes reported, only 18.5% are fully of the port infrastructure (91st) and electricity supply
investigated and resolved.17 About 66% of convicts (82nd) stand out as areas of concern.
receive jail sentences of less than three years, meaning that In response to the above, the government
about two-thirds of resources are spent in investigating, announced a National Infrastructure Program in June
prosecuting and punishing relative less serious offences; 2007 to increase public and private investment in infra-
felonies such as drug trafficking and homicides receive structure through 2012.The program’s goals include the
10 less attention and continue to rise.18 modernization or construction of around 20,000 kilo-
A reform of the criminal justice system designed to meters of highways and rural roads, the modernization
improve accountability and transparency, restore trust and and upgrading of existing road infrastructure, the expansion
confidence among citizens, and ensure higher conviction of the railway and airport systems, and investment in ICT
rates should rank high on the national agenda. A bill infrastructure.23 Financing that involves private-public
approved by congress in February 2008 represents an partnerships (PPPs) will receive priority given limited
important step; however, it is unclear whether the changes public resources.The program should benefit from fortuitous
can be implemented. Additional desirable modifications trends in the capital markets, which have demonstrated
would include: procedural and legal changes to reduce a greater willingness to provide long-term financing in
the time needed to resolve lawsuits; the creation of a local currency.The World Economic Forum Infrastructure
civil service career structure in the police force and Private Investment Attractiveness Index (IPAI),24 developed
investigative agencies to make law enforcement more in 2007 for 12 selected Latin American countries, can
appealing as a profession and improve its reputation and provide insight on the degree of Mexico’s attractiveness
thus help attract and retain talented and qualified people; for private investment in infrastructure.
improvements in the crime reporting process; greater The overall IPAI rankings (Mexico came in 5th of 12)
emphasis on human rights; and an overhaul of the peni- and a snapshot of Mexico’s environment for PPPs in
tentiary system. infrastructure can be found in Figures 4 and 5, respec-
tively. Among Mexico’s strengths: a favorable macroeco-
Infrastructure nomic environment including fairly well developed bond
Well-functioning and extensive infrastructure plays a markets; low political risk; and easy access to information.
fundamental role in increasing an economy’s potential On the downside, the country has a poor track record
for growth. Both the amount and quality of infrastructure of private investment in infrastructure over the past
make important contributions to the private sector’s decade (0.8% of GDP compared to the regional average
rates of productivity and investment.19 Particularly critical 1.8%), and the government’s low level of readiness to
are adequate roads, railroads, ports, and air transport; an facilitate private investment in infrastructure, particularly
uninterrupted electricity supply; and adequate telecom- in terms of the PPP legislation and degree of centralization
munications.Widespread, good quality infrastructure can of infrastructure strategy.
also help reduce inequality and poverty by connecting Some large-scale projects have been auctioned off
poor communities to markets, allowing children in and commissioned by the Federal Electricity Commission
remote areas to attend schools or get access to virtual and Toll Road Rescue Trust (FARAC).The toll road
education, and improving health standards by providing auctions in particular seem to indicate a strong willingness
Figure 4 IPAI ranking, 2007
Rank Country Score

1 Chile 5.43
2 Brazil 4.40
3 Colombia 4.33
4 Peru 4.23
5 Mexico 4.04
6 Uruguay 4.02
7 El Salvador 3.97
8 Guatemala 3.64
9 Argentina 3.41
10 Venezuela 3.37
11 Bolivia 3.34
12 Dominican Republic 3.33 7
Source: Mia et al. 2007
Figure 5 Mexico’s performance at glance in the IPAI
Mexico Chile Average (excl. Chile)
Macro environment
7
Government readiness 6
Legal framework
for private investment
5
4
11
3
Government and society 1 Political risk
Private investment
track record Access to information
Financial markets enablers
Source: Mia et al. 2007
in the private sector to assume investment risks in a stable can operate and generate wealth.The GCI includes a
macroeconomic environment.The government must try macroeconomic stability pillar among its basic requirements
harder to improve the environment for PPPs, notably by of competitiveness.This takes into consideration a handful
ensuring that they are carried out by using resilient of hard indicators such as government budget balance
structures in financial and economic terms. It is hoped and debt, inflation, interest spreads and national saving
that this would encourage more private involvement in rates.
infrastructure projects for the benefit of all social stake- Ranking 35th of 131 countries, up some 20 positions
holders. from last year, Mexico is clearly delivering a convincing
performance on this score in recent years.This is especially
Macroeconomic stability significant given the country’s recent history of cyclical
Strong macroeconomic fundamentals are a necessary financial crises that coincided with the end of each six-
condition for well-functioning and prosperous economies. year presidential term. Relative to the sample group of
They provide a sound environment in which businesses countries/regions, Mexico ranks 4th of 11 on this item,
Figure 6 Citizen Trust in Public Spending in Latin America, 2003 and 2005
2003 2005
40 38
37
% who trust taxes
30 27
20 21 21
20 18 17 18
15 15
12 11
9 10 9
10
0
Peru Brazil Mexico Colombia Argentina Chile Venezuela Latin American
average
Source: OECD Development Center 2007 (based on Latinobarometro)
Figure 7 Tax revenues as a percentage of GDP: Mexico vs. selected countries/regions, 2004*
Direct Taxes** Other Taxes*** Social security 43
40
36 36
35
16
30
12 9
Tax revenue (% GDP)
30
15 5 12
12 18
11 13
20 17 10
1
3 11
12
2 11
10 9
15 5 14 15
10 13
5 5 6
0
Latin America OECD Mexico Chile Brazil Ireland Spain France
* Data is for 2004, except for Bolivia (2003) and Uruguay (2002)
** Direct taxes include: i) taxes on income, profits, and capital gains, ii) taxes on payroll and workforce, and iii) taxes on property
*** Other taxes include: i) taxes on goods and services, and ii) other taxes
Source: OECD Development Center 2007
just behind extremely successful countries such as China walk a stable macroeconomic path into the future.
(7th), Korea (8th) and Chile (12th).With a score of 5.36, Particularly worrisome is the persistent and heavy
it also outperforms the Latin American average (4.63) and, dependence of public finances on oil revenues. Although
notably, the OECD average (5.19), and ranks well ahead important advances have been made to improve the
of sample countries with dismal macroeconomic records budget process,26 increasing transparency and introducing
such as Brazil (126th), India (108th) and Hungary (107th). fiscal rules to address the volatility of revenues from the
Several factors have helped Mexico achieve an state energy company PEMEX, the government has only
“investment grade” macroeconomic environment:25 managed to marginally increase non-oil tax revenues.
single digit inflation, controlled by a constitutionally Petroleum revenues still accounted for approximately
independent Central Bank; prudent fiscal policy, coupled 36% of the total in 2007. One problem is the low level of
with a flexible exchange rate regime, adopted following citizen trust and confidence in public spending (evidenced
the “Tequila” crisis; the reduction of the government by Mexico’s 61st position on perceived wastefulness); this
debt to a manageable level (20% of GDP); and efforts engenders widespread tax evasion.
to change the debt profile from external to internal and The low level of fiscal legitimacy in Mexico,
from short-term to longer-term maturities. including in comparison to the Latin American average
Notwithstanding these positive developments, several and most countries in the region, is demonstrated in
shortcomings need to be addressed before Mexico can Figure 6. On a more positive note, the levels of trust
Figure 8 Inequality and taxes
Inequality before taxes and transfers Inequality after taxes and transfers
60 56
54 53
52 51
50 49
50 46 47 46 47
42
40
34 35
Gini coefficient
31 31
30
20
10
0
Latin America Europe Brazil Mexico Chile Ireland Spain France
Source: OECD Development Center 2007 (based Goñi et al. 2006)
toward public spending seem to have risen from 2003 15% through tax expenditures and transfers, the corre-
to 2005. sponding percentage for Mexico is a disappointing 2%.
Tax revenues as a percentage of GDP stand at 12%, The authors argue this can be largely explained by two
far behind the OECD average (36%) and even lower factors: transfers in Latin America average 7.3% of GDP
than Latin American (17%), as demonstrated by Figure 7. compared to 14.7% in Europe; and Europe’s better targeted
A fiscal reform bill approved by the Mexican and more progressive tax and transfer systems.
Congress in 2007 is expected to increase tax revenues 13
by 2% of GDP over the current six year administration. Health and primary education
Measures include allowing states to levy an additional A healthy and literate workforce is key to a country’s
sales tax on goods and services and an “informality tax” potential to improve its productivity and competitiveness.
of 2% on cash deposits exceeding 20,000 pesos.This is Workers in poor health cannot function to their full
an encouraging step, but it will need to be complemented potential and create significant costs for businesses.
by efforts to improve tax collection, enlarge the extremely Likewise, basic education fosters human resource efficiency
narrow tax base by pulling people out of informality, by enabling employees to correctly perform tasks and
and rationalize the tax system. A slew of exemptions - adapt to the changing needs of the production system.
notably for agriculture, forestry, fishing and pharmaceu- Examples of the positive cause-and-effect relationship
ticals - add to the complexity of the tax system and the between measures of health and education and per capita
potential for evasion. Moreover, some studies have shown income growth abound in the economic literature.
that these exemptions are not progressive but regressive Recent studies demonstrate the importance not only of
and do not reach their intended target, poor Mexicans. full enrollment but also of the quality of education.
A recent study concluded that less then 10% of the With a score of 5.59, Mexico ranked 55th in this
subsidies related to exemptions in the value added tax pillar, just after Korea (27th) and Hungary (41st) in the
reach the poorest 20% of Mexicans.27 sample. It is worth noting that Mexico outperforms the
Any important fiscal adjustment in the medium-term regional star economy Chile, which came in 70th in
will have to be linked to an energy reform package given health and primary education. Nevertheless, Mexico lags
the size of PEMEX’s contribution to public finances. well behind the OECD average (6.14), which suggests
Mexico dearly needs energy reform not only to improve that there is still much left to do.
the efficiency of its markets in goods and services but also Mexico ranks 62nd in health quality. Although
to make public finances less dependent on oil revenues. good by Latin American standards, health indicators
This will be discussed further in the analysis of the market remain far below those of most OECD countries.The
efficiency pillar below. government faces important challenges in providing
The role of fiscal policy in reducing income inequality universal access to basic healthcare services, notably
must also be taken into consideration. One interesting because of the large informal sector.The level of public
study analyzes the measure of inequality most commonly spending as a share of total healthcare spending has been
used by economists, the Gini coefficient, after taxes and increasing, but remains 45% of the total, well below the
transfers (see Figure 8).28 Goñi et al. conclude that, while 73% OECD average. Only about half of the population
Europe succeeds in reducing its inequality on average by is covered by health insurance, and there are large
Figur
Figuree 9 Investment in education vs. performance in math
600
550
500 Slovak Republic

Republic
Poland
Mathematics Score (PISA)
Norrway
No
Spain United States
450
Thailand
Uruguay
400
Mexicco
Mexi
Indonesia
Tunisia
350
Brazil
300
5,000 10,000 15,000 20,000 25,000 30,000

Annual expenditure on educational institutions per student (2001) in $ PPP, by level of education, based on full-time equivalents
14
regional disparities between the richer north and the the primary education system is a major issue (95th).
poorer south in terms of insurance coverage, public Investment in education has increased significantly over
healthcare expenditure and standards of quality. At around the past 15 years. Data from the Ministry of Finance
6.5% of GDP in 2005, total spending in healthcare was show that public expenditures on education rose from
quite low in comparison to the OECD average (8.9%).29 3.7% of GDP in 1990 to an estimated 5.9% of GDP in
Given the country’s demographics, health costs are 2005.This compares to an OECD average of 5.6%.
bound to grow.Thus improved access to preventive care Private spending on education has also increased in the
for uninsured citizens represents a priority.30 According past decade, from about 0.2-0.3% of GDP in the first
to the OECD, the Mexican government appears on half of the 1990s to 1.5% in 2004.33
track to meet this goal by 2010. At the same time, The relatively high outlays for education suggest that
schemes known as Oportunidades (Opportunities) and the problem is not how much but rather how resources
Progresa (Progress) have been providing cash since the are invested. Mexican 15 year-olds score poorly in the
1990s to some five million poor families so that they OECD’s standardized tests (the Program for International
can go to health clinics, receive health education and Student Assessment, PISA) compared to their counterparts
keep their children in school.31 in Thailand and the Slovak Republic, countries with
Given the desire of the government to achieve universal similar levels of spending (see Figure 9).34 As much as
healthcare coverage, new PPP mechanisms should be 90% of expenditures in 2005 were earmarked for wages
explored to share these tasks with the private sector. (80% for teachers and 10% for support staff) even though
Successful in other countries,“build, operate and transfer” 60% of primary school teachers did not have a university
(BOT) mechanisms should be favored over privatization.32 degree and 70% of secondary school instructors had no
BOT schemes allow the private sector to play a greater teacher training, according to the OECD.35
role in providing services while ensuring quality The powerful teachers union, the National Union of
through pre-established agreements on standards. Education Workers (SNTE), the largest labor union in Latin
Mexico ranks 56th in the primary education subpillar. America, has been in large part responsible for blocking
The country has achieved almost universal enrollment in reforms that would increase the quality of spending and help
primary education (98% according to the latest data ensure equal access to education. Poor teacher performance
from the United Nations Educational, Scientific and and learning outcomes are associated with the SNTE-
Cultural Organization, UNESCO), and the it invests dominated, centralized collective bargaining for many
heavily in education (5.25% of GDP, corresponding to a work rules, according to one study.36 In 1992, the SNTE
33rd position out of 131 economies).Yet the quality of reached an agreement that would allow for additional
Figure 10 Percentage of adults 25-64 who have attended higher educational institutions, 2004
50
45
40
35
30
25
20
15
10
0
key
ly
blic
lic
gal
o
ry
ece
rg
nce
any
w Z ge
and
ain
d
nd
n
an
tes
a
d
m
nds
m
rea
alia
ay
ark
d
ia
lan
xic
lan
lan
ede
nad
lan
Ita
gdo
lgiu
nga
bou
pub
str
rw
a
Jap
rla
rtu
Sp
Sta
nm
Ko
Tur
epu
rm
rla
str
Gre
Fra
r
eal
Me
Po
Ice
Fin
Ire
ave
Au
No
Sw
Ca
itze
Be
Kin
Hu
Po
em
Re
Ge
the
Au
De
ited
hR
Sw
CD
Lux
vak
ited
Ne
Ne
c
Un
OE
Cze
Slo
Un
Source: OECD 2007d
negotiations and grant the union greater bargaining power true for countries that have reached higher (efficiency-
at the state level.37 While it is hampering the educational or innovation-driven) development stages; for them, low
reform process, the union is also extracting rents.This cost production provides less of a competitive advantage.
will be further described in the section below on the effi- Higher education is also key to fostering the absorption of
ciency of markets for goods and services. technology and innovation. Countries constantly featured 15
Evidence suggests that quality, measured in terms of the at the top of the Forum’s competitiveness rankings – such
knowledge that the students acquire that can be measured as the United States, the Nordic countries and smaller
by cognitive tests, is critical to economic growth.Thus economies such as Israel and Singapore – all share a
urgent action is needed to de-politicize the educational common focus on higher education in their recent
system and therefore allow for more flexibility in curriculum developmental histories.
development and the hiring and training of teachers and The quality of higher education, especially for math
incentive schemes linked to student performance. and science, has long been a concern for Latin America,
and Mexico is no exception. Ranked 72nd, the country
Efficiency enhancers lags behind the rest of the sample, with the exception of
As other countries at a similar stage of development, China (78th). It is worth noting how fellow OECD
Mexico relies in large part on efficiency enhancers to member Korea, often put forward as top competitor for
ensure sustained economic growth.These include: good Mexico, ranked 6th on the higher education and training
quality higher education, efficient factor markets, the pillar.This could partly explain the different growth
capacity to make use of existing technology (notably paths followed by these countries in the last two decades.
ICT) in one’s domestic production system, and a market Enrollment rates in Mexico for secondary and tertiary
big enough to enable economies of scale. Accordingly, education are poor: 79.71% and 23.39%, respectively,
these efficiency enhancers have a 50% weight in the according to the most recent data available from
overall GCI score for Mexico. UNESCO, putting Mexico in the 80th and 73rd positions,
Mexico, with a score of 4.17, is ranked 50th in this respectively.This problem is compounded by an especially
subindex, outperforming Brazil (55th),Turkey (51st) and the gloomy assessment of the quality of the educational
Latin American average (3.72). But it still languishes among system (92nd), notably in math and science (113th). In
the worst on this score (see Table 5) and lags well behind the latest PISA survey, conducted by the OECD in
the OECD average (4.93).The country displays a very 2006, Mexico placed below the OECD average of 500
mixed performance across the pillars, with ranks stretching points in science (413), math (406) and reading (410) -
from 13th (market size) to 92nd (labor market efficiency). chalking up one of the worst performances among the
57 countries assessed. Only 3% of Mexican students
Higher education and training reached the highest levels in the 2006 PISA science
The importance of an efficient higher education and scale, compared to an OECD average of 9%.38 The poor
training system to provide an adequate pool of skilled results by 15 year-olds on this standardized test have a
and trained labor cannot be overstated.This is especially direct affect on enrollment in higher education (see
Figure 10) – a disappointing 16.4% for Mexico, placing The GCI highlights some areas of particular concern
the country below the OECD average (25.2%) and far regarding the standards of competition in Mexico: the
below top OECD performers, such as the United States extent of market dominance and the effectiveness of the
and Canada, and Korea (30.5%). anti-monopoly policy are assessed very poorly, 87th and
Those Mexicans who do graduate from college tend 77th, respectively. Barriers to foreign and national private
to get degrees in the social sciences, law and professional investment remain high, particularly in some services and
services (43.6% according to OECD in 2002). Only infrastructure sectors, such as telecommunications, energy,
13.9% receive diplomas in engineering, for instance.39 and domestic land transportation. Other problematic aspects
Again this is in marked contrast with Korea, which include the extent and effect of taxation (80th), the cost of
boasts the highest percentage of graduates in engineering the current agricultural policy (105th), and trade openness
(27.4% in 2002) in the OECD.The lack of progress in (102nd for the trade weighted tariff rate). In particular,
areas such as engineering is considered an obstacle to Mexico’s average most favored nation (MFN) tariff remains
innovation.40 higher than the average of middle-income countries; this
In order to make the higher educational system fact is becoming more relevant as trade increases with
more responsive to the needs of an efficiency-driven countries that are not part of preferential agreements.
economy, greater emphasis should be placed on adopting On a positive note, it has become easier to set up a
OECD standards of learning.This should include business in the last year. Notably the number of days
changes in the curriculum to focus on subjects important required to get started dropped from 58 to 27 days.
for a rapidly changing world, such as languages and ICT, The country opened its economy in the late 1980s
as well as scientific and technical training. Efforts should and privatized several key companies in the 1990s.These
be made to recruit students into these majors.41 policies drastically reduced the extent of state intervention
On a more positive note, Mexico deserves recognition in the economy and liberalized trade.42 Yet the GCI
for the quality of its management schools (49th) and the assessment reflects the need to follow through on these
relative availability of specialized research and training initiatives to promote greater efficiency in the markets
services (52nd). for goods and services.The parameters for competition
remain far from perfect for most parts of the Mexican
16 The efficiency of markets for goods and services economy. For example, as mentioned above, the powerful
Well-functioning markets for goods and services ensure teachers union SNTE extracts rents in the education
that resources are allocated to their most appropriate sector thanks to its de facto monopoly position; many
uses.This provides an economy with the right mix of firms have difficulty obtaining financing because of the
products based on supply-and-demand conditions. As country’s history of high concentration in banking and
mentioned above, this becomes particularly important capital markets; the energy sector needs greater compe-
for countries as they move to higher development stages tition and a shift in strategy to ensure long term sustain-
since their competitiveness increasingly rests on efficient ability; and an onerous social security system encourages
production systems and markets. Key underpinnings to people to remain in the informal sector.This latter point
efficient markets for goods and services include healthy will be examined in more detail below.
standards for competition among economic actors, both The lack of competition in important non-tradables
national and foreign, and adequate demand conditions. dampens capital investment and reduces total factor pro-
Market structures that undermine competition cause ductivity. It also hoists a heavy burden on local producers
higher prices, diminished supply, and higher costs to who venture into international markets, saddling them with
society than competitive conditions. Lack of competition higher production costs and unreliable supplies. Utilities
is probably the biggest hindrance to entrepreneurship, (notably natural gas and electricity) present quality problems
innovation and - ultimately - socioeconomic progress. and high prices, which make them among the world’s most
In this spirit the goods market efficiency pillar analyzes expensive. Unionized workers in the petroleum, telecom-
the extent to which government regulations and inter- munications and teaching sectors earn significantly higher
ventions create distortion; including agricultural policies, wages than their peers in other industries with similar levels
anti-monopoly policies, taxation, and the regulatory of education and experience, according to household survey
framework for opening and operating a business. data for the 2000-04.43 Petroleum workers earned 71% more,
With an overall rank of 61st for the efficiency of its telecommunications workers 30% more and teachers
goods and services markets, Mexico is placed in the 48% more than would be expected.This contrasts with
same league as countries like China (58th) and a small 7% premium for workers in manufacturing,
Hungary (59th). It outperforms Russia (84th), Brazil where most companies face international competition.
(97th) and the Latin American average (4.23 for One major problem here is the lack of independence
Mexico vs. 3.95). Mexico has a long way to go to of regulatory agencies in Mexico.The Central Bank is a
match the world-class efficiency of Korea (16th), notable exception, but most regulatory bodies in Mexico
Indonesia (23rd) and Chile (28th). It also lags behind depend on the executive branch for funding and personnel.
the OECD average (4.99). They have limited authority to impose and collect fines.44
Labor market efficiency needs of the production system.These reforms must be
Flexible labor markets ensure that the workforce is allocated accompanied by better education and training; labor
as efficiently as possible.They are critical to improving mobility can only make a difference in conjunction with
competitiveness in all economies.This is even more so a labor pool that consists of people who are skilled, eager
for countries that are competing mainly on high value to learn, and constantly improving their qualifications.
added goods in dynamic markets that require continuous
adjustments in national production systems; the labor Financial market sophistication
market must be flexible enough to allow workers to A sophisticated and efficient financial system is an
gravitate to whatever the key sectors are at a given time. important feature of any competitive economy, especially
Well-functioning labor markets can also help reduce in higher stages of development. Comparative country
poverty and foster social equality.This is especially true for studies tend to find that the depth of the financial system
countries such as Mexico that are characterized by very predicts future economic growth, physical capital accu-
unequal income distribution and widespread hardship.45 mulation, and improvements in economic efficiency -
With a score of 4.09, Mexico is ranked a disappoint- even after controlling for initial income levels, education,
ingly low 92nd for labor market efficiency, by far the and a variety of policy indicators.50 Some studies even
worst assessment among the 12 pillars of competitiveness. suggest that developing deep and efficient financial systems
This is particularly troubling since the country’s competi- is correlated not only with a healthy economy, but also
tiveness rests crucially on the efficiency of factor markets. with poverty reduction and lowered income inequality.51
Although Mexican labor markets seem to function Development of the financial system contributes to
significantly better than those in Turkey (126th, the laggard economic growth by reducing the costs of acquiring
in the sample), Brazil (104th) and India (96th), the and processing information, helping investors diversify
impressive showings of regional leader Chile (14th), risks, and reducing monitoring costs. As a consequence,
Korea (24th), and the OECD average (4.66) demonstrate it improves resource allocation. In the absence of inter-
the magnitude of the challenge for Mexico in this realm. mediaries, economic agents would have to assume the
The GCI assessment reflects the inflexibility of the large cost of evaluating every business, firm, manager,
formal labor market in Mexico. Extremely burdensome sector and whatnot before deciding where to put their
labor regulations include high firing costs (worth 74 savings. Intermediaries handle these tasks, cutting the 17
weeks of salary, according to World Bank estimates, 95th cost of acquiring information and improving the assessment
out of 131 countries)46 and high payroll taxes (including of investment opportunities. Financial intermediaries
social contributions).47 Coupled with an onerous and also encourage innovation by helping to identify entre-
inefficient tax system, these factors hinder labor mobility, preneurs with the best and potentially most profitable
keep human resources “trapped” in low productivity ideas and products, thus reinforcing the Schumpeterian
sectors, discourage training and cause job shortages in process of “creative destruction”.52
the most dynamic sectors.48 In such a context, salaries are The financial market sophistication pillar gauges the
not allowed to play their essential role in allocating labor sophistication and efficiency of the financial system and its
according to demand; indeed wages do not well reflect soundness and trustworthiness. It analyses variables such as
the productivity of economic sectors. In fact, salaries the ease of obtaining bank loans, the soundness of banks,
rose more than productivity in 1995-2004, according to the ease of raising money on the local stock market, and the
the Instituto Mexicano para la Competitividad (Mexican availability of venture capital.With an overall mark of 4.28,
Competitiveness Institute, IMCO). Mexico ranked 67th on this pillar, just above the Latin
An overregulated labor market offers a powerful American average (4.19). Mexico lagged over 40 positions
incentive for informality.The informal market accounted behind the best country in the sample, South Africa (25th),
for over 60% of the active labor force in 2006 and is and the best Latin American performer, Chile (26th). It also
estimated to have absorbed 475,000 out of an estimated fell well behind the OECD average (5.25).
annual 700,000 jobs generated by the Mexican economy As evidenced by a remarkable 20 position improvement
from 2000 to 2006.49 This has serious implications for from last year in the pillar, Mexico’s financial system
social equality and national productivity since informal has been recovering from the endemic fragility of the
jobs tend to be unstable, poorly paid and offer diminishing past caused by macroeconomic instability and recurring
returns.The informal market also reduces the tax base, financial crises. Several factors have contributed to the
compromising the stability of public finances, as mentioned soundness and profitability of the banking sector since
in the section on macroeconomic stability. the “Tequila” crisis: important changes in oversight,
The Calderón administration pushed through changes consolidation and more openness to foreign investment.53
in the pension system for civil servants in March 2007. The inflow of foreign investment helped the consoli-
Among new rules is one allowing for the portability of dation process along and brought in knowledgeable
pensions across sectors. However, structural reforms are people with expertise in areas such as credit analysis.54
still required to make the system less rigid and enable These changes led to remarkable improvements in
the labor market to allocate workers according to the efficiency.
Table 7 Banking infrastructure (per million inhabitants)
Branches ATMs Terminals with services

United Kingdom 619 1,122 18,982
Mexico 109 311 2,742
Chile 135 328 n.a
Brazil 136 1,101 9,374
Canada 534 1,824 20,538
United States 457 1,645 15,012
Source: IMCO (2007)
Nevertheless, important challenges remain. Small and Changes in pension funds and their regulation
medium enterprises and consumers still find it difficult would contribute to the further development of equity
to obtain capital, a fact highlighted by Mexico’s low and corporate debt capital markets.59 Managers of
marks for the ease of access to loans (88th), venture capital mandatory pension funds operate under strict rating
availability (86th) and financing through the equity restrictions; they are allowed to invest only in the highest
markets (68th).55 Behind these rankings is a vicious circle rated securities.This has led to the concentration of
of scarce credit and the inadequate protection of legal investment in both equities and bonds in a small number
rights. Creditors find it hard and time-consuming to of companies.60 Furthermore, pension funds invest
obtain judicial orders that will allow them to execute heavily in government debt, which accounts for 70%
collateral and guarantees.This of course makes them less of their assets (see Figure 11).They shy away from the
inclined to expand credit. Furthermore, the real estate productive sector, and play little if any role in strength-
and property registry databases, essential for the corrob- ening the corporate governance of companies they do
orating information on collateral, use outdated comput- invest in. By contrast, in Brazil over 100 companies
er systems or still work with paper files.Thus creditors have adhered to São Paulo Stock Market’s Novo Mercado
must wade through difficult and lengthy processes to (New Market) which admits only firms that voluntarily
18 verify ownership, and check existing liens and related agree to certain standards of corporate governance, and
information. pension funds work closely with companies preparing
Underlying the problems of access to capital is the IPOs.61 Voluntary collaboration between issuers and
still insufficient banking infrastructure.This can be providers of capital has helped improve corporate gover-
observed in Table 7: nance in Brazil. In turn more funds are flowing from
The lack of venture capital and private equity is also Brazilian fund managers and from abroad, and both the
problematic, especially since these kinds of capital are stock market index and trading volume have shot up.62
used to finance start-ups and foster innovation. In 1999- In Mexico, regulations that hamper the healthy
2004, Latin America received 1% of all private equity diversification of pension assets should be re-examined
flows worldwide; Mexico captured 18% of that.This is with an eye toward achieving more diversification while
related to the negative returns in the region (-10.7%) preserving world-class standards of asset quality.
during that turbulent period, economist and former
Secretary of Finance Aspe Armella has argued.56 He links Technological readiness
the underdevelopment of the private equity industry in In today’s globalized world, technology has increasingly
Mexico to fiscal disincentives, limited institutional partic- become an essential element for firms that hope to
ipation, and barriers to using initial private offerings compete and prosper. Given its impact on production
(IPOs) as exit strategies for private equity investments. processes across sectors and industries, ICT, in particular,
The limited participation of pension funds in private now plays a central role in boosting national productivity.
securities crucially undermines the development of the Technology is important for low-income and developed
private equity industry.57 economies alike, but what really matters for countries
Good news can be found in the development of like Mexico is the availability of knowledge - no matter
Mexico’s capital markets, especially for fixed income what the source. At its current stage of development,
instruments.This has been driven by a clear public debt Mexico does not need to generate knowledge to continue
management strategy designed to gradually open up to grow. It can still benefit from the integration of foreign
participation in the primary market for securities auctions technology in its production processes and everyday life.
and introduce a market-making scheme for government The technological readiness pillar assesses precisely this
debt.This has helped increase secondary market liquidity. aspect, together with ICT penetration.
Annual debt management strategies were announced With a score of 3.23, Mexico ranked 60th in this
and a quarterly auction calendar was made available to pillar, outperforming Russia (72nd), China (73rd),
investors.This helped boost domestic debt from 8% of Indonesia (75th), and the Latin American average (3.06).
GDP in1994 to 22% in 2004.58 However, the country continues to lag behind the
Figure 11 Distribution of portfolio’s investment in Mexico
Government securities Financial Institutions Corporate bonds Equities Investment funds
Foreign securities Others
100
90
80
70
60
50
40
30
20
10
0
Argentina Bolivia Brazil Chile Colombia Mexico Peru
OECD average (4.81), as well as Hungary (41st), Chile Market size

(42nd) and especially bellwether Korea (7th). Korea A sufficiently large market is central to improving produc-
could serve as a source of inspiration for Mexico.That tivity. It allows firms to benefit from economies of scale,
country offers a textbook example of how to quickly in turn encouraging them to invest in research and
and advantageously join the knowledge economy. Korea development (R&D), innovate and constantly improve
followed an integrated public-private strategy focused their production processes. Since relevant markets
on ICT, innovation and education. Massive investment increasingly stretch beyond national borders, the GCI 19
in education and ICT infrastructure established an envi- includes in its assessment both domestic and foreign markets.
ronment favorable to further advances in information With a score of 5.34, Mexico ranked a satisfactory
technology, more public-private partnerships and coor- 13th for the size of its market, putting it in the same
dination, and cooperation between firms and universities. league as Russia (9th), Brazil (10th), Korea (11th) and
Korea also managed to attract high-tech multinationals Indonesia (15th). On this score it outperforms both the
and take advantage of their spillovers to foster a local Latin American (3.31) and OECD (4.72) averages. A very
knowledge-based intermediate goods industry.63 large domestic market (ranked 12th out of 131) is further
Mexico’s performance in individual variables extended by exports (31.9% of its GDP). It ranks 17th
demonstrates how far the country has to go catch up for the size of its foreign market.
with the world’s most networked economies in ITC In terms of domestic market, Mexico’s population is
penetration,64 technology availability (73rd), and the over 100 million, and purchasing power is growing.
ability of its firms to absorb technology (88th). In Recently attained macroeconomic stability, stronger
particular, Mexico is among the OECD countries that growth, expanding credit, and social programs for the poor
have least invested in ICT. Fixed and mobile telephony have contributed to a marked reduction in the percentage
and Internet hosting have grown dramatically in the last of Mexicans under the poverty line (from 37% in 1996
five years, by 21% and 67%,65 respectively, but Internet to 14% in 2006) and the emergence of a more robust
use remains fairly low (16.9% in 2005, according to the middle class.The number of families that earn between
International Telecommunication Union, ITU) by US$600-1,600 a month jumped from 5.7 million in
OECD standards. Korea, for instance, boasts 71%. 1996 to 10.7 million a decade later.66
Mexico ranked 41st for the variable on FDI and The most recent demographic trends bode well for a
technology transfer. But despite considerable incoming further expansion of the domestic market. For the first
FDI flows (see Figure 12 below) associated with at least time in decades, the economically active population
some technology transfer, the country does not appear outnumbers the rest of the population (i.e. the sum of
to have fully taken advantage of an impressive set of retired population and children).67 And the trend is expected
competitive advantages that include a unique geographic to last another 30 years. If supported by investment in
location and the young labor force to insert itself into human and physical capital, productivity and growth
the global knowledge-based value chain. Poor education prospects could benefit as the domestic market grows.
standards, the lack of a centralized innovation policy The size of Mexico’s foreign market is boosted by its
and underdeveloped ICT infrastructure all stand as extensive network of free trade agreements. Mexico is a
obstacles. world leader in signing such pacts. It has inked deals that
Figur
Figuree 12 FDI flows to Mexico, 1970-2006
30,000
25,000
20,000
US$ millions
15,000
10,000
5,000
0
1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006
Source: UNCTAD 2007
Figure 13 Evolution of main exports, 1994-2006
All commodities Machinery and transport equipment Mineral fuels, lubrificants and related materials
Miscellaneous manufactured articles
300
250
20
200
US$ billion
150
100
50
0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: United Nations 2008
involve 43 countries on three continents – translating Figures 12 and 13 show the evolution of Mexico’s
into a potential market of one billion consumers.68 Since FDI inflows and manufactured exports, respectively, for
the early 1990s, Mexico has concluded free trade agree- the last few decades. FDI increased from US$ 11 billion
ments with countries and regions as diverse as Chile in 1994 to US$ 19 billion in 2006,69 roughly equivalent
(1992), the United States and Canada (NAFTA, 1994), to 3% of GDP. FDI is helping Mexico shift from low to
Venezuela and Colombia (the G3 Free Trade Agreement, higher tech manufacturing. And since restrictions on
1995), Israel (2000), the European Union (2000) and foreign ownership in banking were lifted in the 1990s, it
Japan (2005). Mexico is also an active member of has also bolstered the financial sector. Mexico is also
important regional forums, such as the Asia Pacific beginning to get some traction from its geographical
Economic Cooperation Association, the Latin American location – especially in the automotive (5% of FDI) and
Integration Association and the Free Trade Area of the other sectors in which competitiveness relies on trans-
Americas. portation costs and just-in-time logistics. In these sectors,
NAFTA has provided Mexico with free access to its the country is increasingly integrated into the production
main market, the United States. From NAFTA’s inception and distribution systems of the United States.
to 2005, regional trade in North America grew by 128% Exports have also become more diversified. Mexico’s
to a record US$ 772 billion. NAFTA has also served as exports were dominated by manufactured products (81%)
a catalyst for attracting FDI to Mexico and helped it in 2006, of which 44.7% came from the maquiladora
diversity its exports. assembly sector.70 This magnifies a trend observed in the
region. Commodity exports in Latin America declined the forefront of the recent multilatinas phenomenon, by
from over 50% to 30% from 1985-87 to 1999-2002. which Latin American companies successfully expand
Foreign sales of manufactured products rose from 50% globally thanks to superior technology and organization.72
to over 70% during the same period.71 One of the largest cement producers in the world, with
US$ 18 billion in annual sales in 2006,73 CEMEX is a
Innovation and Sophistication Factors textbook example of a multilatina.The company has
The capacity to generate innovation and produce unique expanded operations abroad through acquisitions, rolling
value added products via sophisticated production processes out an efficient business model (built around extremely
is a central driver of competitiveness for countries that advanced IT systems) beyond the region, to places such
have reached the last and most advanced stage of devel- as the United States, Indonesia, the Philippines and the
opment, as explained above. Mexico has not reached the United Kingdom.
innovation-driven stage yet; therefore, innovation and
sophistication factors are not yet crucial to the country’s Innovation
sustained growth.Thus these factors account for only Innovation is widely seen as a strategic driver of national
10% of its overall GCI score. competitiveness in the long run. It is the only “good”
The country came in 60th for innovation and that does not suffer from diminishing rates of return.
sophistication (with a score of 3.66), putting it among This is especially true for countries that are on the tech-
the worst performers in the sample, just after Russia nological frontier. For them, the capacity to generate
(77th). Nevertheless, Mexico outperformed the Latin new and innovative products or processes becomes
American average (3.42). Also the innovation and essential for sustained growth. As mentioned above,
sophistication factor subindex is the worst ranked across Mexico can still benefit from adopting external sources
the three GCI subindexes. of technology. However, with an eye toward the future,
it should begin to attempt to realize its own innovative
Business sophistication potential. Any national development strategy should
The business sophistication pillar captures elements include as a goal the establishment of an environment
at the microeconomic level that affect a healthy and that is friendly to and encourages innovation.
competitive business environment.The operations, With a rather mediocre score of 3.11, Mexico ranked 21
strategies and business networks of sophisticated firms 71st for its innovation potential, last in the sample - 14 places
help them achieve greater efficiency in the production behind second-to-last Russia (57th) and 63 positions behind
of goods and services.They foster productivity and, Korea (8th). One look at the OECD average (4.47) provides
therefore, competitiveness. Important elements include an idea of how much ground Mexico has to make up.
the quantity and quality of suppliers, the presence of Innovation has traditionally been a weak point for
effective clusters, well-developed production processes, Latin America, and this is confirmed by the low regional
the nature of a firm’s competitive advantage, and the average in the innovation pillar (2.93).Very much in line
extent to which a firm controls international distribution with the regional performance, Mexico displays important
and marketing. Business sophistication is especially critical weaknesses in most dimensions relevant to innovation,
for firms operating at the top end of value chains, which including investment, university-business cooperation,
are mainly located in high income countries. However, and scientific and technological potential. Capacity for
it is bound to become increasingly important for efficiency- innovation and spending on R&D are assessed as quite
driven economies such as Mexico as they move along low (at 58th and 69th, respectively). Research institutions
the development path. receive a sub-par rating (65th), and university-industry
For its development level, Mexico displays a fairly research collaboration is judged insufficient (59th). Nor
sophisticated business sector, reflected in a 54th overall does the government seem to be using its procurement
rank (corresponding to a 4.22 score). Contributing to policy to foster innovative and efficient high tech products
this score are relatively developed clusters (54th), good (93rd) or to provide adequate protection for intellectual
quality local suppliers (49th), and a broad value chain property rights (65th).The insufficient pool of scientists
(46th), among other factors.Within the sample, Mexico and engineers (96th) is also a concern, as highlighted
ranks lower than similarly efficiency-driven economies above in the section on the higher education and training
like Chile (32nd), South Africa (36th), Brazil (39th) and pillar.
Turkey (41st), but it outperforms important competitors The lack of focus on innovation is evident in the
such as Russia (88th) and China (57th), and tops the low per capita number of registered patents per million
Latin American average (3.91). population for Mexico, i.e. 0.61 in 2006.Though this is
This rather strong performance reflects Mexico’s not far from off the regional average,74 it compares poorly
diversification. Many firms operate quite high up in the with emerging economies such as Taiwan (226.86),
value chain and produce sophisticated, value-added Israel (179.12) and Korea (123). Indeed, Mexico fell
goods. Assembly maquiladoras represent just one aspect of among the OECD countries with the lowest R&D
Mexico’s production landscape.The country has been at investment relative to GDP (0.5%) and industry R&D
investment relative to value added (0.3%) in 2005.75 With the deficiencies highlighted above. Only then can the
respect to business R&D investment, a note of optimism country take advantage of its diverse competitive advantages
can be introduced: the private sector has been consistently and ensure sustained growth and enduring prosperity
increasing its participation in national R&D,76 from for its citizens.
14.28% to 41.90% in 1992-2005, according to the Red The current administration deserves credit for efforts
de Indicadores de Ciencia y Tecnologia RICYT -Iberoamericana to end the political deadlock that dominated the terms
e Interamericana (Network on Science and Technology of its two immediate predecessors.The government has
Indicators).77 Moreover, Mexico has increased the share managed to push important bills through congress,
of business R&D financed by the government from including pension reform for public employees, fiscal
2.8% in 1995 to 5.7% in 2005 and has adopted important reform, electoral reform, and reform of the criminal
tax incentives to support innovation among companies. justice system. It also plans to present to congress an
According to the OECD,78 one unit of R&D expenditure urgently needed energy reform bill.These are significant
by firms resulted in 0.37 units of tax relief. steps in the right direction.They will increase productivity
and foster growth, provided they are duly implemented.
Conclusions Consensus building continues to be a priority, coupled
This paper has underlined the significant progress made with a focus on action and diligent execution.
by Mexico in the last decade or so toward creating a
strong foundation for sustained competitiveness. At the
same time, it has not been shy about pointing out short-
comings and challenges.
The country has broken free from endemic macro-
economic instability. It has made impressive strides
toward opening, liberalizing and improving the efficiency
of its economy. It has also diversified its economy.Yet a
number of important weaknesses remain in key areas.
Among the efficiency-enhancers, overly rigid labor
22 markets and imperfect competition conditions in the
goods and services markets hamper economic efficiency.
They need to be addressed by further liberalization and
structural reforms.The poor quality of the higher education
system, reflected in the unsatisfactory performance of
Mexican students on international tests, is a major cause
of concern. As for other countries whose competitiveness
is hinged to efficient production systems and markets,
Mexico needs a qualified, constantly learning and adaptable
workforce. In addition, Mexico also suffers from an
insufficient pool of graduates in math, science and engi-
neering.This reduces the capacity of Mexican firms to
advance further in the value chain. National innovation
and the capacity to absorb and adapt foreign technology
are also hurt.
Mexico also continues to display serious shortcomings
in some of the basic requirements of competitiveness.The
quality of its institutions is worrisome.The list of problems
is long: poor public governance, rampant corruption, low
levels of citizen trust in politicians, widespread red-tape
and government inefficiency, an onerous tax system with
a small tax base, and an inefficient legal framework.
Epidemic levels of crime and violence impose considerable
costs on businesses, not to mention ordinary Mexicans.
This is well understood by policymakers, but further
action is urgently required.
At the same time, Mexico is a country of great
potential, with a unique geographical position, a young
population and a rapidly expanding market.This potential
must and can be fulfilled by a joint effort of all political
parties, the business sector and civil society to address
Notes 31 The World Bank found that these programs significantly helped to raise
enrollment rates. Similarly, improvements in health and nutrition linked to
the program have also been striking, as measured by increases in the height
1 With an estimated US$ 840 billion economy, according to the Economist of children and reductions in the incidence of disease. See World Bank 2006.
Intelligence Unit (EIU) 2007a.
32 In other countries, BOT mechanisms have proven an efficient way of involving
2 According to the United Nations Conference on Trade and Development the private sector and transferring some of the risks to it, while achieving the
(UNCTAD) 2007, Mexico attracted around US$ 19.04 billion in 2006, ahead of most important goal of providing a quality service.
Brazil (US$ 18.78 billion) and Chile (US$ 7.950 billion).
33 EIU 2007c.
3 United Nations Population Fund 2006.
34 Developed jointly by OECD member countries through the OECD’s Directorate
4 See Consejo Ejecutivo de Empresas Globales (Executive Council of Global for Education, the PISA gauges the degree to which 15 year-old students,
Enterprises) 2006, page 48. approaching the end of compulsory education, have acquired some of the
5 EIU 2007a. knowledge and skills essential for full participation in the knowledge economy.
6 For a more detailed analysis of the GCI, see Sala-i-Martin et al. 2007. PISA surveys are conducted every three years and focus on science, math and
reading. The last survey conducted in 2006 included 57 countries, up from 41
7 The classification adopted here is a slightly modified version of Michael
in 2003, covering close to 90% of the world economy. Further information
Porter’s theory of stages of development (Porter, 1990). For further details,
can be found at: www.pisa.oecd.org.
see Sala-i-Martin et al. 2007, note 19.
35 OECD 2005.
8 Countries are allocated to the different stages of development according to
their GDP per capita at market exchange, as a proxy for wages. This criterion 36 Guerrero et al. 2006.
is then corrected with a second one measuring the extent to which countries 37 World Bank 2006.
are factor-driven, using as proxies the share of exports of primary goods in 38 OECD 2007a.
total exports (goods and services). We assume that countries that export
39 This is also reflected in the survey data on the availability of scientists and
more than 70% of primary products are to a large extent factor-driven.
engineers, included in the innovation pillar, for which Mexico ranked 96th.
9 The weights have been derived from a growth regression using three
40 Murphy et al. provide evidence suggesting that countries with a higher pro-
decades of data using as proxies the main categories included in the GCI.
portion of engineering college majors grow faster, whereas countries with a
10 For a more in depth analysis of the survey’s process and methodology, see higher proportion of law graduates are less dynamic. See Murphy et al. 1991.
Browne and Geiger 2007.
41 See IMCO 2007.
11 The list of countries chosen for the comparative sample includes Chile, the
42 As already mentioned, the signing of NAFTA and other trade agreements
top performer in Latin America, the BRICS countries (Brazil, Russia, India,
allowed the country to diversify away from primary commodities and develop
China and South Africa), Korea and Indonesia in Asia, and Turkey and
an important manufacturing sector and other higher value added industries.
Hungary in Europe. Also the regional average scores for Latin America and
Manufactured goods exports expanded by 11% per year in dollar terms on
the OECD are taken into account, given Mexico’s double “nature” as a Latin
average in the 10 years to 2005, compared with 6% for the OECD on average
American country and an OECD member. 23
(OECD 2007b).
12 Our analysis is conducted on a constant 2005-06 sample, meaning Mexico’s
43 Guerrero et al. 2006.
rankings among only the economies included in the 2005-2006 GCI computa-
tion, excluding the economies included for the first time in 2006-07 and 44 The Federal Communication Commission can impose fines, but it has little
2007-08. That is, taking into account only the 117 included in 2005-06. ability to enforce them. This depends on the judicial system. At the same time,
the Federal Telecommunication Commission can only give recommendations
13 Just after Chile (26th), Puerto Rico (36th) and Barbados (50th).
to the corresponding ministry. It lacks independent enforcement powers.
14 Hausmann et al. 2004.
45 The most recent Gini coefficient for Mexico was 46.1, lower than Brazil
15 According to Business Software Alliance 2006, 65% of the software bought (57.0), but much higher than Korea (31.6). See World Bank 2007.
in Mexico comes from counterfeit or illegal sources; this points to a high
46 Unlike Chile, Mexico has not significantly liberalized the labor legal framework
degree of non-observance of copyrights.
in the wake of the market reforms of the 1990s. The framework remains very
16 Zepeda 2004. much the one established by the 1917 constitution and the federal labor law
17 Ibid. adopted in 1970. Over flexibility and efficiency, priority is given to the protection
18 Zepeda 2006. Zepeda reports that in 2006, 213,000 individuals were in jail of workers rights. These include the provision of a minimum salary, severe
(of which 92,000 had not been sentenced), with a daily minimum fiscal cost restrictions on forms of employment other than permanent contracts, a
of US$ 3.2 million. protection mechanism for workers in work-related disputes, and promotion
criteria based on seniority and “unionization” rather than competence (the
19 Borensztein et al. consider good quality infrastructure, in particular in trans-
so called “Escalafón ciego”).
portation and telecommunications, as a key determinant in attracting FDI.
See Borensztein et al. 1998 47 Mexico is ranked 92nd in the variable for non-wage labor cost, estimated by
the World Bank at 23.9% of total salary.
20 Hulten 1996.
48 Although McKinsey (in Farrell et al. 2007) ranks Mexico 2nd in its index of the
21 Mia et al. 2007.
most attractive offshore centers (given its low labor cost and attractive geo-
22 Fay and Morrison 2005. graphical position), it warns about the difficulties encountered by companies
23 EIU 2007c. in finding suitable talent, especially for high-skilled jobs.
24 For further details on the IPAI’s concept and methodology, see Mia et al. 2007. 49 Instituto Mexicano del Seguro Social (Mexican Social Security Institute
2006), quoted in IMCO 2007.
25 Currently for Standard & Poor’s at BBB+ with a stable outlook.
50 De la Torre and Schmuckler 2007; and Levine et al. 2000.
26 Important reforms started under Pedro Aspe Armilla’s tenure as secretary
of finance. 51 Levine 2005.
27 Larre et al. 2007. 52 Rajan and Zingales 2003.
28 Goñi et al. 2006. 53 Restrictions on foreign ownership in the banking sector were lifted in 1998.
29 EIU 2007c. 54 According to the EIU, by 2006 80% of banking sector assets was controlled
by foreign investors, notably by BBVA-Bancomer, Banamex, HSBC and Banco
30 This effort is being carried out via the Sistema de Proteccion Social en Salud
Santander Mexicano. See EIU 2007c.
(System of Social Security in Heath, centered on a voluntary health insurance
schemes) and Seguro Popular (Popular Insurance), financed mainly by contri- 55 In the past decade a decrease, not an increase, in the numbers of issuers has
butions from federal and state governments, with means-tested contributions been observed. Market capitalization as a percentage of GDP is less than
from affiliates. 25%, four times less than in the developed world or Chile, according to the
Bolsa Mexicana de Valores (BMV, Mexican Stock Market, www.bmv.com.mx).
56 IMCO 2007.
57 Rather than increasing direct buying of equities and participating on the
boards of companies listed in the stock exchange, pension managers have
tended to limit most of their exposure in equities to Exchange Traded Funds.
Thus they are not active shareholders.
58 De la Torre et al. 2007.
59 In 1997 an important reform was passed changing the pay-as-you-go system
to a fully-funded one with individual accounts.
60 In 2004, 93% of all corporate debt on the balance sheets of pension funds
was rated AA or higher, while in the equity markets 10 firms represented 70%
of the value traded. (see BMV website, available at: www.bmv.com.mx).
61 Novo Mercado is a listing segment designed for shares issued by companies
that voluntarily agree to abide by corporate governance practices and trans-
parency requirements in addition to those already required by the Brazilian law
and the Brazilian Securities and Exchange Commission. Given the voluntary
aspect, it is widely thought that the Novo Mercado is a success because
both investors and companies consider corporate governance obligations to
be advantageous.
62 As of February 2008, Brazil became the largest emerging market in the
Morgan Stanley Capital International Global Emerging Market index,
accounting for 14.95% of the index. In 2002, Brazil accounted for just 5.3%.
(see: www.mscibarra.com)
63 For a full account of the different competitiveness strategies followed by
Mexico and Korea, see Villareal Ramos and Villareal Arrambide 2006.
64 Ranked 69th, 59th, 54th and 50th, respectively, for mobile telephone subscribers,
Internet users, personal computers and broadband Internet subscribers.
65 OECD 2007c.
66 The Economist 2007c.
67 According to the Consejo Nacional de Población (National Council of Population)
(quoted in Consejo Ejecutivo de Empresas Globales 2006), the number of
children per fertile mother has decreased from 7 to 2.1 from the 1970s to 2005.
24 68 See http://www.gob.mx/wb/egobierno
69 UNCTAD 2007.
70 The maquiladora or maquila system has been one of the main forms of off-
shoring to Mexico from the United States. It takes advantage of the duty-free
regime between the two countries. The numerous maquiladoras, clustered
along the US-Mexico border, assemble products from imported material and
equipment, which are then re-exported to the United States.
71 ECLAC-CEPAL 2004.
72 According to Alfaro and Hammel, the average number of foreign deals for
the largest Latin American countries (home of most multilatinas) has
increased from four per year in 1993 to 40 in the late 1990s and early 2000s.
See Alfaro and Hammel 2006.
73 The Economist 2008.
74 Costa Rica and Argentina, the best performers in the region in this respect,
display 1.14 and 0.97 patents per million population, respectively; Chile and
Brazil follow at 0.85 and 0.64, respectively (see US Patent and Trademark
Office 2007).
75 OECD 2007c.
76 The government and universities still accounted for 40.69% and 7.22%,
respectively, in 2005.
77 RICyT 2007.
78 OECD 2007c.
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P. and S. Durlauf eds. Amsterdam: Elsevier.
Annex 1: Structure of the Global Competitiveness Index 2007-2008
This annex presents the structure of the Global 2nd pillar: Infrastructure .......................................... 25%
Competitiveness Index 2007-2008. A. General infrastructure ................................................................. 50%
The numbering of the variables matches the numbering of 2.01 Quality of overall infrastructure
the Data Tables in the Global Competitiveness Report 2007- B. Specific infrastructure ................................................................ 50%
2008.The number preceding the period indicates to which 2.02 Quality of roads
pillar the variable belongs. 2.03 Quality of railroad infrastructure
The hard data indicators used in the GCI are normalized on 2.04 Quality of port infrastructure
2.05 Quality of air transport infrastructure
a 1-to-7 scale in order to align them with the Executive
2.06 Available seat kilometers (hard data)
Opinion Survey’s results.a 2.07 Quality of electricity supply
Those variables that are followed by the symbol1/2 enter the 2.08 Telephone lines (hard data)
GCI in two different places. In order to avoid double counting,
we give them a half-weight in each place by dividing their 3rd pillar: Macroeconomic stability ...................... 25%
value by 2 when computing the aggregate score for the two 3.01 Government surplus/deficit (hard data)
categories in which they appear.b 3.02 National savings rate (hard data)
The percentage next to each category represents this category’s 3.03 Inflation (hard data)d
weight within its immediate parent category.The computation 3.04 Interest rate spread (hard data)
3.05 Government debt (hard data)
of the GCI is based on successive aggregations of scores, from
the variable level (i.e., the lowest level) all the way up to the 4th pillar: Health and primary education.............. 25%
overall GCI score (i.e., the highest level), using the weights
A. Health.............................................................................................. 50%
reported above. For example, the score a country achieves in 4.01 Business impact of malariae
the 9th pillar accounts for 17% of this country’s score in the 4.02 Malaria incidence (hard data)e
Efficiency enhancers subindex. Similarly, the score achieved 4.03 Business impact of tuberculosise
on the Networks and supporting industries subpillar accounts 4.04 Tuberculosis incidence (hard data)e
for 50% of the score of the 11th pillar. Reported percentages 4.05 Business impact of HIV/AIDSe
are rounded to the nearest integer, but exact figures are used 4.06 HIV prevalence (hard data)
26 4.07 Infant mortality (hard data)
in the calculation of the GCI. 4.08 Life expectancy (hard data)
The weight of each of the three subindexes (Basic requirements,
B. Primary education ........................................................................ 50%
Efficiency enhancers, and Innovation and sophistication factors) 4.09 Quality of primary education
depends on each country’s stage of development, as discussed 4.10 Primary enrollment (hard data)
in the text.c 4.11 Education expenditure (hard data)1/2
Basic requirements
Weight (%) within
immediate Efficiency enhancers
parent category
1st pillar: Institutions ................................................ 25% 5th pillar: Higher education and training ............. 17%
A. Quantity of education................................................................... 33%
A. Public institutions ........................................................................ 75%
5.01 Secondary enrollment (hard data)
1. Property rights ..................................................................... 20%
5.02 Tertiary enrollment (hard data)
1.01 Property rights
4.11 Education expenditure (hard data)1/2
1.02 Intellectual property protection1/2
B. Quality of education..................................................................... 33%
2. Ethics and corruption.......................................................... 20%
5.03 Quality of the educational system
1.03 Diversion of public funds
5.04 Quality of math and science education
1.04 Public trust of politicians
5.05 Quality of management schools
3. Undue influence................................................................... 20% 5.06 Internet access in schools
1.05 Judicial independence
C. On-the-job training ....................................................................... 33%
1.06 Favoritism in decisions of government officials
5.07 Local availability of specialized research and training
4. Government inefficiency .................................................... 20% services
1.07 Wastefulness of government spending 5.08 Extent of staff training
1.08 Burden of government regulation
1.09 Efficiency of legal framework 6th pillar: Goods market efficiency ....................... 17%
1.10 Transparency of government policymaking
A. Competition.................................................................................... 67%
5. Security ................................................................................. 20% 1. Domestic competition ................................................. variablef
1.11 Business costs of terrorism 6.01 Intensity of local competition
1.12 Business costs of crime and violence 6.02 Extent of market dominance
1.13 Organized crime 6.03 Effectiveness of anti-monopoly policy
1.14 Reliability of police services 6.04 Extent and effect of taxation1/2
B. Private institutions ....................................................................... 25% 6.05 Total tax rate (hard data)1/2
1. Corporate ethics .................................................................. 50% 6.06 Number of procedures required to start a business
1.15 Ethical behavior of firms (hard data)g
2. Accountability ...................................................................... 50% 6.07 Time required to start a business (hard data)g
1.16 Strength of auditing and reporting standards 6.08 Agricultural policy costs
1.17 Efficacy of corporate boards 2. Foreign competition..................................................... variablef
1.18 Protection of minority shareholders’ interests 6.09 Prevalence of trade barriers
6.10 Trade-weighted tariff rate (hard data) 12th pillar: Innovation ............................................... 50%
6.11 Prevalence of foreign ownership
12.01 Capacity for innovation
6.12 Business impact of rules on FDI
12.02 Quality of scientific research institutions
6.13 Burden of customs procedures
12.03 Company spending on R&D
10.04 Imports as a percentage of GDP (hard data)
12.04 University-industry research collaboration
B. Quality of demand conditions .................................................... 33% 12.05 Government procurement of advanced technology
6.14 Degree of customer orientation products
6.15 Buyer sophistication 12.06 Availability of scientists and engineers
12.07 Utility patents (hard data)
7th pillar: Labor market efficiency......................... 17% 1.02 Intellectual property protection1/2
A. Flexibility........................................................................................ 50%
7.01 Cooperation in labor-employer relations Notes:
7.02 Flexibility of wage determination a. The standard formula for converting hard data is the following:
7.03 Non-wage labor costs (hard data) (count
ountrry score - sample minimum)
6× +1
7.04 Rigidity of employment (hard data) ( sample maximum- sample minimum)
7.05 Hiring and firing practices The sample minimum and sample maximum are, respectively, the lowest and
6.04 Extent and effect of taxation1/2 highest country scores in the sample of countries covered by the GCI. In some
instances, adjustments were made to account for extreme outliers. For those
6.05 Total tax rate (hard data)1/2
hard data variables for which a higher value indicates a worse outcome (e.g.,
7.06 Firing costs (hard data)
disease incidence, government debt), we rely on a normalization formula that, in
B. Efficient use of talent................................................................... 50% addition to converting the series to a 1-to-7 scale, reverses it, so that 1 and 7
7.07 Pay and productivity still corresponds to the worst and best possible outcomes, respectively:
7.08 Reliance on professional management1/2 (count
ountrry score- sample minimum)
−6× +7
7.09 Brain drain ( sample maximum - sample minimum)
7.10 Female participation in labor force (hard data)
b. As described in the chapter, the weights are the following:
8th pillar: Financial market sophistication .......... 17% Factor- Efficiency- Innovation-
driven driven driven
A. Efficiency........................................................................................ 50% Weights stage (%) stage (%) stage (%)
8.01 Financial market sophistication Basic requirements 60 40 20
8.02 Financing through local equity market Efficiency enhancers 35 50 50
8.03 Ease of access to loans Innovation factors 5 10 30
8.04 Venture capital availability
c. For those groups of variables that contain one or several half-weight variables,
8.05 Restriction on capital flows country scores for those groups are computed as follows: 27
8.06 Strength of investor protection (hard data) 1
variables) +
(sum of scoreson full - weight var × ( sum of scoreson half - weight var
variables)
B. Trustworthiness and confidence............................................... 50% 2
1
8.07 Soundness of banks variables) − × ( count of half - weight var
(count of full - weight var variables)
2
8.08 Regulation of securities exchanges
d. In order to capture the idea that both high inflation and deflation are detrimental,
8.09 Legal rights index (hard data)
inflation enters the model in a U-shaped manner as follows: for values of inflation
between 0.5 and 2.9%, a country receives the highest possible score of 7. Outside
9th pillar: Technological readiness ....................... 17% this range, scores decrease linearly as they move away from these values.
9.01 Availability of latest technologies e. The impact of malaria, tuberculosis, and HIV/AIDS on competitiveness depends
9.02 Firm-level technology absorption not only on their respective incidence rates, but also on how costly they are for
9.03 Laws relating to ICT business. Therefore, in order to estimate the impact of each of the three diseases,
9.04 FDI and technology transfer we combine its incidence rate with the survey question on its perceived cost to
9.05 Mobile telephone subscribers (hard data) businesses. To combine these data we first take the ratio of each country’s disease
incidence rate relative to the highest incidence rate in the whole sample. The
9.06 Internet users (hard data)
inverse of this ratio is then multiplied by each country’s score on the related sur-
9.07 Personal computers (hard data)
vey question. This product is then normalized to a 1-to-7 scale. Note that coun-
9.08 Broadband Internet subscribers (hard data) tries with zero reported incidence receive a 7, regardless their scores on the
related survey question.
10th pillar: Market size............................................. 17% f. The Competition subpillar is the weighted average of two components:
A. Domestic market size .................................................................. 75% Domestic competition and Foreign competition. In both components, the included
10.01 Domestic market size index (hard data)h variables provide an indication of the extent to which competition is distorted.
The relative importance of these distortions depends on the relative size of domestic
B. Foreign market size...................................................................... 25%
versus foreign competition. This interaction between the domestic market and
10.02 Foreign market size index (hard data) i the foreign market is captured by the way we determine the weights of the two
components. Domestic competition is the sum of consumption (C), investment
Innovation and sophistication factors (I), government spending (G), and exports (X), while foreign competition is equal
to imports (M). Thus we assign a weight of (C+I+G+X)/(C+I+G+X+M) to domestic
competition, and a weight of M/(C+I+G+X+M) to foreign competition.
11th pillar: Business sophistication ...................... 50%
g. Variables 6.06 and 6.07 combine to form one single variable.
A. Networks and supporting industries........................................ 50%
11.01 Local supplier quantity h. The size of the domestic market is constructed by taking the natural log of the
sum of the gross domestic product valued at PPP plus the total value (PPP estimates)
11.02 Local supplier quality
of imports of goods and services, minus the total value (PPP estimates) of
11.03 State of cluster development exports of goods and services. Data are then normalized on a 1-to-7 scale. PPP
B. Sophistication of firms’ operations and strategy................... 50% estimates of imports and exports are obtained by taking the product of exports
11.04 Nature of competitive advantage as a percentage of GDP and GDP valued at PPP. The underlying data are reported
11.05 Value chain breadth in the Data Tables section of the Global Competitiveness Report 2007-2008.
11.06 Control of international distribution i. The size of the foreign market is estimated as the natural log of the total value
11.07 Production process sophistication (PPP estimates) of exports of goods and services, normalized on a 1-to-7 scale.
11.08 Extent of marketing PPP estimates of exports are obtained by taking the product of exports as a
11.09 Willingness to delegate authority percentage of GDP and GDP valued at PPP. The underlying data are reported in
the Data Tables section of the Global Competitiveness Report 2007-2008.
7.08 Reliance on professional management1/2
Part II
Country Profiles
List of Countries
List of Countries
Country/Economy Page
Mexico 52
Brazil 58
Chile 62
China 66
Hungary 70
India 74
Indonesia 78
Korea, Rep. 82
Russia 86
South Africa 90
Turkey 94
31
How to Read the Country Profiles
EVA TRUJILLO HERRERA, World Economic Forum
This section includes a four-page country profile for

Mexico and three-page country profiles for the 10 other Brazil
countries covered in this Report. Each country profile Key indicators
Total population (millions), 2007......................................................................191.3
displays major economic, financial, social and trade data GDP (US$ billions), 2007................................................................................1,295.4
GDP per capita (PPP, US$), 2007 .................................................................6,841.6
Real growth in GDP (percent), 2007...................................................................4.4
from published sources and the World Economic Forum’s Current account balance (percent of GDP), 2006 .................................................1.3
Total reserves in months of imports, 2005 ........................................................5.1
Unemployment (percent of total labour force), 2007 ......................................9.8
Executive Opinion Survey (Survey). Country profiles are GINI index, 2004...................................................................................................57.0
laid out as follows: the first page presents key indicators Competitiveness rankings
as a general overview of a country’s economic and social Global Competitiveness Index 2007-2008 .........72 ......4.0
Rank
(out of 131)
Score
(1–7)
Innovation
Institutions
7
6
Infrastructure
5
GCI 2006-2007 (out of 122) ......................................................66 ........4.1
development and the main results from the World Economic Basic requirements...........................................................101 ........3.8
1st pillar: Institutions .........................................................104 ........3.3
Business
sophistication 4
3
Macroeconomic
stability
2 Health and
Forum’s Global Competitiveness Index (GCI); the second 2nd pillar: Infrastructure.....................................................78 ........3.1
3rd pillar: Macroeconomic stability................................126 ........3.7
4th pillar: Health and primary education .........................84 ........5.2
Market size 1 primary
education
Higher education
page includes charts that illustrate the evolution of per Efficiency enhancers..........................................................55 ........4.1
5th pillar: Higher education and training .........................64 ........4.0
Technological
readiness
Financial market Goods market

and training
6th pillar: Goods market efficiency...................................97 ........3.8 sophistication efficiency
capita gross domestic product (GDP), foreign direct 7th pillar: Labor market efficiency ..................................104 ........4.0
8th pillar: Financial market sophistication.......................73 ........4.1
Labor market efficiency
9th pillar: Technological readiness...................................55 ........3.3
investment, main exports, and trade data; the third (and 10th pillar: Market size........................................................10 ........5.4
Innovation factors ...............................................................41 ........4.0
Brazil Mexico
11th pillar: Business sophistication..................................39 ........4.5

fourth for Mexico) presents the rankings for the country 12th pillar: Innovation..........................................................44 ........3.5
in question on each of the indicators of the GCI. Source: World Economic Forum, Global Competitiveness Report 2007-2008
The most problematic factors for doing business

Brazil Mexico
Tax regulations ........................................................18.2% .........9.3%
Tax rates ...................................................................16.0% .........6.3%
33
Page 1 Restrictive labour regulations...............................12.2% .........8.6%
Inefficient government bureaucracy...................10.6% .......15.6%
Inadequate supply of infrastructure ......................9.2% .......10.8%
Corruption...................................................................8.1% .......12.5%
Access to financing..................................................7.8% .......12.0%
Key indicators Policy instability.........................................................5.0% .........7.6%

Inadequately educated workforce.........................3.3% .........3.8%
Foreign currency regulations..................................3.1% .........0.2%
The first section presents a selection of key indicators. Crime and theft ..........................................................3.0% .......10.6%
Inflation .......................................................................1.3% .........0.6%
Brazil
Poor work ethic in national labour force ..............1.2% .........1.9%
Mexico
Population figures come from the United Nations Government instability/coups .................................1.1% .........0.2%
0 5 10 15 20 25
Source: World Economic Forum, Executive Opinion Survey 2006, 2007 Percent of responses
Population Fund (UNFPA)’s State of World Population

Note: From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between
2007. GDP data come from World Economic Outlook 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings.
Database. Current account and unemployment data

come from the Economist Intelligence Unit (EIU).
Total reserves figures come from the World Bank’s World The most problematic factors for doing business
Development Indicators 2007 (CD version).The GINI This chart summarizes factors considered by CEOs and
index is computed by the United Nations Development top executives as the biggest barriers to doing business
Programme (UNDP) and is presented in the 2007 in a country.The information is drawn from a Survey
edition of the Human Development Report.The most question. From a menu of 14 factors, respondents were
recent data available for each country is displayed. asked to rank in order the five biggest barriers to doing
business in the countries in which they were based.
Competitiveness Rankings
The table shows the country’s rankings in the GCI as For the other countries, the scores for Mexico are
presented in the Global Competitiveness Report (GCR) shown by way of comparison.
2007-08. Ranks are measured against the 131 countries
covered by that edition of the GCR.
For Mexico, a bar chart on the right-hand side compares

its scores to the average score for Latin America and the
Caribbean, and the best performer for each subindex/pillar.
For other countries, a spider chart on the right-hand

side shows their scores per subindex and pillar, as
compared to Mexico’ scores.
Page 2
Brazil
GDP based on purchasing power parity (PPP) per GDP per capita (PPP, US$), 1996-2007
capita, 1996-2007 Brazil

Western Hemisphere
12,000
10,000
8,000
This chart shows the evolution of GDP based on purchasing 6,000

4,000
2,000
power parity (PPP) per capita for the last 10 years.The 0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: World Economic Outlook Database, October 2007
data were obtained from the World Economic Outlook

Database. 5 FDI Inflows, 1995-2006
(US$ value in millions)
35,000
30,000
25,000
20,000
5 FDI Flows (US$), 1995-2006 15,000

10,000
5,000
0
This chart tracks the evolution of foreign direct investment 1995
Source: UNCTAD, FDI Database, World Investment Report 2007

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
inflows for a 10 year period through 2006.The data are from

the United Nations Conference on Trade and Development 6 Main Exports, 1994-2006
(US$ value in billions)
160
All commodities 140
(UNCTAD)’s Foreign Direct Investment Database. Manufactured goods

classified chiefly by
materials
120
100
80
Machinery and transport 60
equipment 40
Food and live anmals 20
chefly for food 0
6 Main exports (in US$), 1994-2006 Source: UN Comtrade Database, January 2008
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
This chart illustrates the evolution of the make-up of a

7 Share of merchandase exports Trade diversification 8
country’s export trade. It shows the total value in US$ for by main destination, 2006 Number of exported product groups out of 261
2005................................................................................47.6
European Union:
all exports, as well as for the top three categories of exports, Others:
22.1%
Source: International Trade Center
42.1%
according to the Standard International Classification United

States: 18%
Trade Classification (SITC). Data come from United Mexico: 3.2%

China: 6.1%
Argentina: 8.5%
Nations Statistics Division’s Cometrade Database. Source: WTO, 2007
Note: For descriptions of variables and detailed sources, please refer to “How to Read the Country Profiles.”
7 Share of merchandise exports by main destination

This figure presents the breakdown of exports by destination
country or region with the total value of a country’s
34 exports appearing below, for 2006 or most recent year
available.These figures come from the World Trade
Organization, country profiles online.
8 Trade diversification
The bottom area features an indicator of a country’s export
diversification in 2005 expressed as the number of exporting
sectors.This indicator gives equal weight to each sector,
using SITC at the three-digit aggregation level. It varies
from 1 (no diversification) to 261 (highest diversification)
and is expressed as the inverse of the Herfindahl Index.
Data come from the International Trade Centre.
Page 3 (and 4 for Mexico)
Brazil
9 National Competitiveness Balance Sheet 9 The Global Competitiveness Index in detail + Better than Mexico (45 times) – Worse than Mexico (65 times)
INDICATOR RANK/131 VALUE INDICATOR RANK/131 VALUE
This page provides detailed information on the relative 1.01

1.02
1st pillar: Institutions
Property rights ..........................................................70 ...+ .....4.5
Intellectual property protection ................................73 ....– .....3.3
6.07
6.08
6.09
Time required to start a business*.........................123 ....– .152.0
Agricultural policy costs............................................40 ...+ .....4.1
Prevalence of trade barriers......................................98 ....– .....4.0
Diversion of public funds ........................................124 ....– .....2.2 Trade-weighted tariff rate* .......................................80 ...+ .....8.2
strengths and weaknesses of each economy.The balance 1.03
1.04
1.05
Public trust of politicians.........................................126 ....– .....1.4
Judicial independence ..............................................89 ....– .....3.1
6.10
6.11
6.12
Prevalence of foreign ownership..............................95 ....– .....4.6
Business impact of rules on FDI ..............................96 ....– .....4.6
1.06 Favoritism in decisions of government officials .......91 ....– .....2.7 6.13 Burden of customs procedures..............................124 ....– .....2.5
Wastefulness of government spending..................127 ....– .....1.9 Degree of customer orientation ...............................61 ....– .....4.7
sheet presents all variables used to calculate the GCI 1.07
1.08
1.09
Burden of government regulation...........................128 ....– .....1.9
Efficiency of legal framework .................................105 ....– .....2.9
6.14
6.15 Buyer sophistication .................................................65 ....– .....3.8
1.10 Transparency of government policymaking ............107 ....– .....3.3 7th pillar: Labor market efficiency
organized under issue areas that are part of the 12 pillars 1.11
1.12
1.13
Business costs of terrorism......................................10 ...+ .....6.2
Business costs of crime and violence....................121 ....– .....2.8
Organized crime......................................................125 ....– .....3.3
7.01
7.02
7.03
Cooperation in labor-employer relations ...................96 ....– .....4.2
Flexibility of wage determination............................108 ....– .....4.2
Non-wage labor costs* ...........................................119 ....– ...37.5
1.14 Reliability of police services ...................................120 ....– .....2.6 7.04 Rigidity of employment* ..........................................73 ....– ...42.0
of the GCI; such as infrastructure, macroeconomy and 1.15

1.16
1.17
Ethical behavior of firms...........................................98 ....– .....3.8
Strength of auditing and reporting standards...........63 ...+ .....4.8
Efficacy of corporate boards.....................................65 ...+ .....4.6
7.05
7.06
7.07
Hiring and firing practices.......................................121 ....– .....2.7
Firing costs* .............................................................65 ...+ ...36.8
Pay and productivity .................................................93 ....– .....3.8
1.18 Protection of minority shareholders’ interests .........46 ...+ .....4.8 7.08 Reliance on professional management ....................40 ...+ .....5.0
business sophistication.The figures correspond to the 2.01

2nd pillar: Infrastructure
Quality of overall infrastructure ................................97 ....– .....2.7
7.09
7.10
Brain drain ................................................................40 ...+ .....3.9
Female participation in labor force* .........................72 ...+ .....0.7
Quality of roads.......................................................110 ....– .....2.3

country’s rank for a particular variable among the 131 2.02
2.03
2.04
Quality of railroad infrastructure ...............................91 ....– .....1.7
Quality of port infrastructure...................................116 ....– .....2.6
8.01
8.02
8th pillar: Financial market sophistication
Financial market sophistication ................................31 ...+ .....5.4
Financing through local equity market .....................61 ...+ .....4.8
2.05 Quality of air transport infrastructure .......................87 ....– .....4.0 8.03 Ease of access to loans............................................89 ....– .....2.8
Quality of electricity supply ......................................61 ...+ .....4.9
countries included in the GCR 2007-08. 2.07
2.08 Telephone lines*.......................................................60 ...+ ...21.4
8.04
8.05
8.06
Venture capital availability .......................................103 ....– .....2.5
Restriction on capital flows ....................................123 ....– .....3.1
Strength of investor protection* ..............................45 ....– .....5.3
3rd pillar: Macroeconomic stability 8.07 Soundness of banks .................................................36 ...+ .....6.1
3.01 Government surplus/deficit* ....................................98 ....– ....-3.0 8.08 Regulation of securities exchanges..........................41 ...+ .....5.1
3.02 National savings rate* ..............................................82 ....– ...18.3 8.09 Legal rights index*..................................................118....=.....2.0
3.03 Inflation*...................................................................61 ....– .....4.2
3.04 Interest rate spread* ..............................................127 ....– ...36.9 9th pillar: Technological readiness
Variables are defined as advantages or disadvantages 3.05 Government debt* ...................................................99 ....– ...65.5
4th pillar: Health and primary education

9.01
9.02
9.03
Availability of latest technologies .............................60 ...+ .....4.3
Firm-level technology absorption..............................55 ...+ .....4.9
Laws relating to ICT .................................................52 ...+ .....4.0
4.01 Business impact of malaria .....................................n/a 9.04 FDI and technology transfer .....................................47 ....– .....5.1
according to the methodology employed in the GCR 4.02

4.03
Malaria incidence* ..................................................105 ....– .254.2
Business impact of tuberculosis ..............................47 ....– .....6.2
9.05
9.06
Mobile telephone subscribers* ................................68 ...+ ...46.2
Internet users* .........................................................58 ...+ ....17.2
4.04 Tuberculosis incidence* ...........................................69 ....– ...59.6 9.07 Personal computers*................................................47 ...+ ...16.1
Business impact of HIV/AIDS...................................61 ....– .....5.3 Broadband Internet subscribers* .............................54 ....– .....1.8
2007-08: for the top 10 countries in the GCI, variables 4.05
4.06
4.07
HIV prevalence* .......................................................77 ....– .....0.5
Infant mortality* .......................................................91 ....– ...32.0
9.08
10th pillar: Market size

4.08 Life expectancy* ......................................................81 ....– ...70.0 10.01 Domestic market size*...............................................9 ...+ .....5.5
ranked between 1 and 10 are considered to be advantages; 4.09

4.10
4.11
Quality of primary education ..................................123 ....– .....2.2
Primary enrollment* .................................................45 ....– ...95.3
Education expenditure*............................................64 ....– .....4.1
10.02 Foreign market size*.................................................10 ...+ .....5.2
11th pillar: Business sophistication

11.01 Local supplier quantity..............................................21 ...+ .....5.4
for countries in the 11-50 bracket, variables ranked better 5.01

5.02
5th pillar: Higher education and training
Secondary enrollment* ............................................21 ...+ .102.0
Tertiary enrollment*..................................................75 ....– ...22.3
11.02
11.03
11.04
Local supplier quality ................................................40 ...+ .....5.0
State of cluster development ...................................41 ...+ .....3.9
Nature of competitive advantage .............................99 ....– .....3.0
5.03 Quality of the educational system..........................120 ....– .....2.5 11.05 Value chain breadth ..................................................67 ....– .....3.6
than a country’s own rank are considered to be advantages; 5.04

5.05
5.06
Quality of math and science education ..................117 ....– .....2.8
Quality of management schools...............................66 ....– .....4.1
Internet access in schools........................................70 ....– .....3.3
11.06
11.07
11.08
Control of international distribution ..........................49 ...+ .....4.3
Production process sophistication............................36 ...+ .....4.4
Extent of marketing..................................................33 ...+ .....5.2
5.07 Local availability of research and training services...32 ...+ .....4.7 11.09 Willingness to delegate authority.............................39 ...+ .....4.2
for countries with overall GCI ranks of lower than 50, 5.08 Extent of staff training..............................................45 ...+ .....4.2
12th pillar: Innovation
6th pillar: Goods market efficiency 12.01 Capacity for innovation .............................................29 ...+ .....4.0
Intensity of local competition ...................................45 ...+ .....5.3 Quality of scientific research institutions .................42 ...+ .....4.3
any variables ranked equal to or higher than 50 are 6.01
6.02
6.03
Extent of market dominance ....................................45 ...+ .....4.2
Effectiveness of anti-monopoly policy......................47 ...+ .....4.3
12.02
12.03
12.04
Company spending on R&D .....................................35 ...+ .....3.8
University-industry research collaboration................46 ...+ .....3.4
6.04 Extent and effect of taxation ..................................131 ....– .....1.5 12.05 Gov’t procurement of advanced tech products........67 ...+ .....3.6
considered to be advantages. 6.05

6.06
Total tax rate* .........................................................109 ....– ...71.7
No. of procedures required to start a business*....121 ....– ....17.0
12.06
12.07
Availability of scientists and engineers.....................60 ...+ .....4.4
Utility patents* .........................................................55 ...+ .....0.6
* Hard data
In the Mexico section the average scores for three Note: For further details and explanation, please refer to the section "How to Read the Country/Economy Profiles" at the beginning of this chapter.
groups - Latin America and the Caribbean, countries

of the Organization for Economic Cooperation and
Development (OECD), and the best performer for each
indicator - are included for comparative purposes. Mexico 35
For other countries, Mexico’s scores are included. 9 The Global Competitiveness Index in detail competitive advantages / improve/worsen between 2006-2007 and 2007-2008
competitive disadvantages / improve/worsen between 2005-2006 and 2006-2007
INDICATOR RANK SCORE LA&C OECD BEST PERFORMER EVOLUTION

1.01 Property rights ..........................................................................77.................... ..................4.3 ................4.2 ................5.8 ....................6.7 Germany .................................
The figures to the left of the variables refer to the numbering 1.02
1.03
Intellectual property protection .............................................65.................... ..................3.5 ................3.2 ................5.3 ....................6.5
Diversion of public funds ........................................................80.................... ..................3.3 ................3.2 ................5.2 ....................6.6
Germany .................................
Denmark .................................
1.04 Public trust of politicians ........................................................91.................... ..................2.1 ................2.1 ................3.9 ....................6.4 Singapore ...............................
Judicial independence ............................................................75.................... ..................3.6 ................3.3 ................5.4 ....................6.5 Germany .................................
of the data tables presented in the GCR 2007-08. 1.05
1.06
1.07
Favoritism in decisions of government officials..................90.................... ..................2.7 ................2.7 ................4.2 ....................5.7
Wastefulness of government spending................................61.................... ..................3.4 ................2.9 ................3.9 ....................5.9
Finland.....................................
Singapore ...............................
1.08 Burden of government regulation .......................................112.................... ..................2.6 ................2.8 ................3.3 ....................5.3 Singapore ...............................
The reference is to 2007 unless otherwise specified. 1.09

1.10
1.11
Efficiency of legal framework ................................................96.................... ..................3.1 ................3.2 ................5.0 ....................6.5
Transparency of government policymaking.........................76.................... ..................3.9 ................3.7 ................4.8 ....................6.1
Business costs of terrorism....................................................53.................... ..................5.6 ................5.3 ................5.5 ....................6.6
Denmark .................................
Singapore ...............................
Finland.....................................
1.12 Business costs of crime and violence................................119.................... ..................2.9 ................3.3 ................5.5 ....................6.7 Syria ........................................
1.13 Organized crime......................................................................120.................... ..................3.4 ................4.2 ................5.7 ....................6.7 Iceland ....................................
1.14 Reliability of police services.................................................119.................... ..................2.6 ................3.3 ................5.5 ....................6.7 Finland.....................................
1.15 Ethical behavior of firms .........................................................51.................... ..................4.4 ................4.1 ................5.4 ....................6.6 Finland.....................................
1.16 Strength of auditing and reporting standards .....................69.................... ..................4.6 ................4.4 ................5.7 ....................6.3 Germany .................................
1.17 Efficacy of corporate boards..................................................67.................... ..................4.6 ................4.6 ................5.2 ....................6.1 Sweden...................................
1.18 Protection of minority shareholders’ interests....................68.................... ..................4.4 ................4.1 ................5.3 ....................6.4 Sweden...................................

2.01 Quality of overall infrastructure .............................................69.................... ..................3.4 ................3.3 ................5.3 ....................6.7 Switzerland ............................
2.02 Quality of roads.........................................................................59.................... ..................3.6 ................3.3 ................5.1 ....................6.7 France .....................................n/a
2.03 Quality of railroad infrastructure ...........................................74.................... ..................2.2 ................1.6 ................4.6 ....................6.8 Switzerland ............................
2.04 Quality of port infrastructure ..................................................91.................... ..................3.3 ................3.6 ................5.1 ....................6.8 Singapore ...............................
2.05 Quality of air transport infrastructure...................................60.................... ..................4.8 ................4.4 ................5.6 ....................6.9 Singapore ...............................
2.07 Quality of electricity supply ....................................................82.................... ..................4.1 ................4.2 ................6.1 ....................6.9 Denmark .................................
2.08 Main telephone lines (per 100 pop.)*....................................65.................... ................18.2 ..............17.5 ..............47.1 ..................69.0 Switzerland ............................
3rd pillar: Macroeconomic stability

3.01 Central government balance (% of GDP)* ...........................49.................... ..................0.1...............-0.3 ................0.0 ..................42.1 Libya ........................................
3.02 National savings rate (% of GDP)* ........................................67.................... ................21.8 ..............21.4 ..............22.1 ..................65.2 Kuwait .....................................
3.03 Annual percent change in consumer price index ..............54.................... ..................3.6 ................6.7 ................2.8 ....................0.2 Japan ......................................
3.04 Interest rate spread (%)* ........................................................46.................... ..................4.2 ................9.6 ................3.8 ....................0.6 Netherlands ...........................
3.05 Government gross debt (% of GDP)* ....................................23.................... ................20.2 ..............49.6 ..............53.7 ....................0.0 Timor-Leste.............................

4.01 Business impact of malaria ....................................................43.................... ..................6.5 ................5.9 ................6.6 ....................6.9 Iceland ....................................
4.02 Malaria incidence (cases per 100,000 pop.)* ......................76.................... ..................3.2 ............325.7 ................0.6 ....................0.0 Multiple (57) .................=..........
4.03 Business impact of tuberculosis ...........................................37.................... ..................6.3 ................5.8 ................6.4 ....................6.9 Denmark .................................
4.04 Tuberculosis incidence (cases per 100,000 pop.)* .............39.................... ................22.7 ..............62.3 ..............16.1 ....................2.8 Iceland ....................................
4.05 Business impact of HIV/AIDS.................................................57.................... ..................5.4 ................4.7 ................5.9 ....................6.6 Iceland ....................................
4.06 HIV prevalence (% of adult pop.)*.........................................64.................... ..................0.3 ................0.9 ................0.3 ....................0.1 Multiple (24) .................=..........=
4.07 Infant mortality (deaths per 1,000 live births)* ....................75.................... ................23.0 ..............23.1 ................5.9 ....................2.0 Multiple (2) ...................=..........
4.08 Life expectancy at birth (years)* ...........................................46.................... ................74.0 ..............71.6 ..............78.3 ..................82.0 Multiple (2) ...................=..........=
4.09 Quality of primary education ..................................................95.................... ..................2.7 ................2.9 ................4.9 ....................6.5 Finland...........................n/a ........n/a
4.10 Primary education enrollment (net rate, %)*.......................23.................... ................98.0 ..............93.1 ..............96.2 ..................99.8 Japan ......................................
4.11 Education expenditure (% of GNI)*.......................................33.................... ..................5.3 ................3.9 ................5.1 ....................9.4 Uzbekistan....................=..........n/a

5.01 Secondary education enrollment (gross rate, %)*.............80.................... ................79.7 ..............80.5 ............104.0 ................148.6 Australia .......................=..........
5.02 Tertiary education enrollment (gross rate, %)*...................73.................... ................23.4 ..............27.4 ..............60.4 ..................89.9 Korea.......................................
5.03 Quality of the educational system .........................................92.................... ..................3.0 ................3.0 ................4.7 ....................6.0 Singapore ...............................
5.04 Quality of math and science education..............................113.................... ..................2.8 ................3.1 ................4.9 ....................6.3 Singapore ...............................
5.05 Quality of management schools ............................................49.................... ..................4.4 ................4.1 ................5.1 ....................6.0 France .....................................
5.06 Internet access in schools .....................................................62.................... ..................3.5 ................3.0 ................5.2 ....................6.5 Iceland ....................................
5.07 Local availability of specialized research and training services.........52.................... ..................4.1 ................3.7 ................5.1 ....................6.0 Switzerland ............................
5.08 Extent of staff training .............................................................65.................... ..................3.8 ................3.6 ................4.9 ....................5.9 Denmark .................................
6th pillar: Goods market efficiency

6.01 Intensity of local competition .................................................66.................... ..................4.9 ................4.7 ................5.6 ....................6.3 Germany .................................
6.02 Extent of market dominance...................................................87.................... ..................3.3 ................3.4 ................5.0 ....................6.2 Germany .................................
6.03 Effectiveness of anti-monopoly policy..................................77.................... ..................3.6 ................3.5 ................5.2 ....................6.1 Germany .................................
6.04 Extent and effect of taxation ..................................................80.................... ..................3.2 ................3.2 ................3.5 ....................6.3 Bahrain ...................................
6.05 Total tax rate (% of profits)* ...................................................34.................... ................37.1 ..............52.4 ..............47.5 ..................14.9 Saudi Arabia ..........................n/a
6.06 Number of procedures required to start a business*........37.................... ..................8.0 ..............11.2 ................6.7 ....................2.0 Multiple (3) .............................=
6.07 Number of days required to start a business*....................48.................... ................27.0 ..............79.7 ..............18.4 ....................2.0 Australia .................................=
6.08 Agricultural policy costs .......................................................105.................... ..................3.4 ................3.8 ................3.8 ....................5.6 New Zealand..........................
Mexico
Competitiveness Profile
Mexico Competitiveness Profile
Mexico
Key indicators
GDP (US$ billions), 2007...................................................................................886.4
Current account balance (percent of GDP), 2006................................................-0.2
GINI index, 2004...................................................................................................46.1
The Global Competitiveness Index in detail

Rank Score
(out of 131) (1–7) 1 7
Global Competitiveness Index 2007-2008 .........52 ......4.3 5.7 United States

GCI 2006-2007 (out of 122) ......................................................52 ........4.2 5.8 United States
GCI 2005-2006 (out of 114) ......................................................53 ........4.1 5.9 United States
Basic requirements.............................................................56 ........4.5 6.1 Denmark

1st pillar: Institutions ...........................................................85 ........3.6 6.2 Finland
2nd pillar: Infrastructure.....................................................61 ........3.5 6.7 Germany
3rd pillar: Macroeconomic stability..................................35 ........5.4 6.6 Kuwait
4th pillar: Health and primary education .........................55 ........5.6 6.6 Finland
Efficiency enhancers..........................................................50 ........4.2 5.8 United States

5th pillar: Higher education and training .........................72 ........3.8 6.0 Finland
38
6th pillar: Goods market efficiency...................................61 ........4.2 5.8 Hong Kong SAR
7th pillar: Labor market efficiency ....................................92 ........4.1 5.7 United States
8th pillar: Financial market sophistication.......................67 ........4.3 6.2 Hong Kong SAR
9th pillar: Technological readiness...................................60 ........3.2 5.9 Sweden
10th pillar: Market size........................................................13 ........5.3 6.8 United States
Innovation factors ...............................................................60 ........3.7 5.8 Switzerland

11th pillar: Business sophistication..................................54 ........4.2 5.9 Germany
12th pillar: Innovation..........................................................71 ........3.1 5.8 United States
Source: World Economic Forum, Global Competitiveness Report 2007-2008 Mexico Best performer LA&C OECD
Inefficient government bureaucracy .................15.6%

Corruption ...............................................................12.5%
Access to financing ..............................................12.0%
Inadequate supply of infrastructure ..................10.8%
Crime and theft ......................................................10.6%
Tax regulations.........................................................9.3%
Restrictive labour regulations...............................8.6%
Policy instability.......................................................7.6%
Tax rates....................................................................6.3%
Inadequately educated workforce.......................3.8%
Poor work ethic in national labour force ............1.9%
Inflation .....................................................................0.6%
Government instability/coups................................0.2%
Foreign currency regulations................................0.2%
0 5 10 15 20 25
1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings.
Mexico
GDP per capita (PPP, US$), 1996-2007
14,000
Mexico 12,000
Western Hemisphere 10,000
8,000
6,000
4,000
2,000
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
FDI Inflows, 1995-2006

30,000
25,000
20,000
15,000
10,000
5,000
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: UNCTAD, FDI Database, World Investment Report 2007 39
Main Exports, 1994-2006

300
All commodities 250
equipment
150
Mineral fuels, lubricants
and related materials 100
Miscellaneous 50
manufactured articles
0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: UN Comtrade Database, January 2008
Share of merchandise exports Trade diversification

Number of exported product groups out of 261
by main destination, 2006
2005................................................................................28.1
European Union: 4.4%
Canada: 2.1% Source: International Trade Center
Colombia: 0.9%
Venezuela: 0.7%
Others: 7.0%
United
States: 84.9%
Source: WTO, 2007
Mexico
The Global Competitiveness Index in detail competitive advantages / improve/worsen between 2006-2007 and 2007-2008
competitive disadvantages / improve/worsen between 2005-2006 and 2006-2007

1.01 Property rights ..........................................................................77.................... ..................4.3 ................4.2 ................5.8 ....................6.7 Germany .................................
1.02 Intellectual property protection .............................................65.................... ..................3.5 ................3.2 ................5.3 ....................6.5 Germany .................................
1.03 Diversion of public funds ........................................................80.................... ..................3.3 ................3.2 ................5.2 ....................6.6 Denmark .................................
1.04 Public trust of politicians ........................................................91.................... ..................2.1 ................2.1 ................3.9 ....................6.4 Singapore ...............................
1.05 Judicial independence ............................................................75.................... ..................3.6 ................3.3 ................5.4 ....................6.5 Germany .................................
1.06 Favoritism in decisions of government officials..................90.................... ..................2.7 ................2.7 ................4.2 ....................5.7 Finland.....................................
1.07 Wastefulness of government spending................................61.................... ..................3.4 ................2.9 ................3.9 ....................5.9 Singapore ...............................
1.08 Burden of government regulation .......................................112.................... ..................2.6 ................2.8 ................3.3 ....................5.3 Singapore ...............................
1.09 Efficiency of legal framework ................................................96.................... ..................3.1 ................3.2 ................5.0 ....................6.5 Denmark .................................
1.10 Transparency of government policymaking.........................76.................... ..................3.9 ................3.7 ................4.8 ....................6.1 Singapore ...............................
1.11 Business costs of terrorism....................................................53.................... ..................5.6 ................5.3 ................5.5 ....................6.6 Finland.....................................
1.12 Business costs of crime and violence................................119.................... ..................2.9 ................3.3 ................5.5 ....................6.7 Syria ........................................
1.13 Organized crime......................................................................120.................... ..................3.4 ................4.2 ................5.7 ....................6.7 Iceland ....................................
1.14 Reliability of police services.................................................119.................... ..................2.6 ................3.3 ................5.5 ....................6.7 Finland.....................................
1.15 Ethical behavior of firms .........................................................51.................... ..................4.4 ................4.1 ................5.4 ....................6.6 Finland.....................................
1.16 Strength of auditing and reporting standards .....................69.................... ..................4.6 ................4.4 ................5.7 ....................6.3 Germany .................................
1.17 Efficacy of corporate boards..................................................67.................... ..................4.6 ................4.6 ................5.2 ....................6.1 Sweden...................................
1.18 Protection of minority shareholders’ interests....................68.................... ..................4.4 ................4.1 ................5.3 ....................6.4 Sweden...................................

2.01 Quality of overall infrastructure .............................................69.................... ..................3.4 ................3.3 ................5.3 ....................6.7 Switzerland ............................
2.02 Quality of roads.........................................................................59.................... ..................3.6 ................3.3 ................5.1 ....................6.7 France .....................................n/a
2.03 Quality of railroad infrastructure ...........................................74.................... ..................2.2 ................1.6 ................4.6 ....................6.8 Switzerland ............................
2.04 Quality of port infrastructure ..................................................91.................... ..................3.3 ................3.6 ................5.1 ....................6.8 Singapore ...............................
2.05 Quality of air transport infrastructure...................................60.................... ..................4.8 ................4.4 ................5.6 ....................6.9 Singapore ...............................
2.07 Quality of electricity supply ....................................................82.................... ..................4.1 ................4.2 ................6.1 ....................6.9 Denmark .................................
40 2.08 Main telephone lines (per 100 pop.)*....................................65.................... ................18.2 ..............17.5 ..............47.1 ..................69.0 Switzerland ............................
3rd pillar: Macroeconomic stability

3.01 Central government balance (% of GDP)* ...........................49.................... ..................0.1...............-0.3 ................0.0 ..................42.1 Libya ........................................
3.02 National savings rate (% of GDP)* ........................................67.................... ................21.8 ..............21.4 ..............22.1 ..................65.2 Kuwait .....................................
3.03 Annual percent change in consumer price index ..............54.................... ..................3.6 ................6.7 ................2.8 ....................0.2 Japan ......................................
3.04 Interest rate spread (%)* ........................................................46.................... ..................4.2 ................9.6 ................3.8 ....................0.6 Netherlands ...........................
3.05 Government gross debt (% of GDP)* ....................................23.................... ................20.2 ..............49.6 ..............53.7 ....................0.0 Timor-Leste.............................

4.01 Business impact of malaria ....................................................43.................... ..................6.5 ................5.9 ................6.6 ....................6.9 Iceland ....................................
4.02 Malaria incidence (cases per 100,000 pop.)* ......................76.................... ..................3.2 ............325.7 ................0.6 ....................0.0 Multiple (57) .................=..........
4.03 Business impact of tuberculosis ...........................................37.................... ..................6.3 ................5.8 ................6.4 ....................6.9 Denmark .................................
4.04 Tuberculosis incidence (cases per 100,000 pop.)* .............39.................... ................22.7 ..............62.3 ..............16.1 ....................2.8 Iceland ....................................
4.05 Business impact of HIV/AIDS.................................................57.................... ..................5.4 ................4.7 ................5.9 ....................6.6 Iceland ....................................
4.06 HIV prevalence (% of adult pop.)*.........................................64.................... ..................0.3 ................0.9 ................0.3 ....................0.1 Multiple (24) .................=..........=
4.07 Infant mortality (deaths per 1,000 live births)* ....................75.................... ................23.0 ..............23.1 ................5.9 ....................2.0 Multiple (2) ...................=..........
4.08 Life expectancy at birth (years)* ...........................................46.................... ................74.0 ..............71.6 ..............78.3 ..................82.0 Multiple (2) ...................=..........=
4.09 Quality of primary education ..................................................95.................... ..................2.7 ................2.9 ................4.9 ....................6.5 Finland...........................n/a ........n/a
4.10 Primary education enrollment (net rate, %)*.......................23.................... ................98.0 ..............93.1 ..............96.2 ..................99.8 Japan ......................................
4.11 Education expenditure (% of GNI)*.......................................33.................... ..................5.3 ................3.9 ................5.1 ....................9.4 Uzbekistan....................=..........n/a

5.01 Secondary education enrollment (gross rate, %)*.............80.................... ................79.7 ..............80.5 ............104.0 ................148.6 Australia .......................=..........
5.02 Tertiary education enrollment (gross rate, %)*...................73.................... ................23.4 ..............27.4 ..............60.4 ..................89.9 Korea.......................................
5.03 Quality of the educational system .........................................92.................... ..................3.0 ................3.0 ................4.7 ....................6.0 Singapore ...............................
5.04 Quality of math and science education..............................113.................... ..................2.8 ................3.1 ................4.9 ....................6.3 Singapore ...............................
5.05 Quality of management schools ............................................49.................... ..................4.4 ................4.1 ................5.1 ....................6.0 France .....................................
5.06 Internet access in schools .....................................................62.................... ..................3.5 ................3.0 ................5.2 ....................6.5 Iceland ....................................
5.07 Local availability of specialized research and training services.........52.................... ..................4.1 ................3.7 ................5.1 ....................6.0 Switzerland ............................
5.08 Extent of staff training .............................................................65.................... ..................3.8 ................3.6 ................4.9 ....................5.9 Denmark .................................
6th pillar: Goods market efficiency

6.01 Intensity of local competition .................................................66.................... ..................4.9 ................4.7 ................5.6 ....................6.3 Germany .................................
6.02 Extent of market dominance...................................................87.................... ..................3.3 ................3.4 ................5.0 ....................6.2 Germany .................................
6.03 Effectiveness of anti-monopoly policy..................................77.................... ..................3.6 ................3.5 ................5.2 ....................6.1 Germany .................................
6.04 Extent and effect of taxation ..................................................80.................... ..................3.2 ................3.2 ................3.5 ....................6.3 Bahrain ...................................
6.05 Total tax rate (% of profits)* ...................................................34.................... ................37.1 ..............52.4 ..............47.5 ..................14.9 Saudi Arabia ..........................n/a
6.06 Number of procedures required to start a business*........37.................... ..................8.0 ..............11.2 ................6.7 ....................2.0 Multiple (3) .............................=
6.07 Number of days required to start a business*....................48.................... ................27.0 ..............79.7 ..............18.4 ....................2.0 Australia .................................=
6.08 Agricultural policy costs .......................................................105.................... ..................3.4 ................3.8 ................3.8 ....................5.6 New Zealand..........................
Mexico

The Global Competitiveness Index in detail (next)
6.09 Prevalence of trade barriers ..................................................53.................... ..................4.7 ................4.3 ................5.3 ....................6.3 Hong Kong SAR.....................
6.10 Trade-weighted tariff rate (% duty)* ...................................102.................... ................11.9 ................8.8 ................3.9 ....................0.0 Multiple (2) ...................=..........n/a
6.11 Prevalence of foreign ownership ..........................................32.................... ..................5.7 ................5.1 ................5.6 ....................6.5 Ireland.....................................
6.12 Business impact of rules on FDI ............................................46.................... ..................5.4 ................4.9 ................5.5 ....................6.5 Ireland.....................................
6.13 Burden of customs procedures .............................................74.................... ..................3.6 ................3.4 ................4.9 ....................6.4 Singapore .....................n/a ........n/a
6.14 Degree of customer orientation.............................................59.................... ..................4.7 ................4.3 ................5.4 ....................6.1 Austria.....................................
6.15 Buyer sophistication ................................................................54.................... ..................4.0 ................3.7 ................4.9 ....................5.7 Switzerland ............................
INDICATOR..........................................................................RANK.................... .............SCORE ...........LA&C ...........OECDBEST PERFORMER .................................EVOL
7th pillar: Labor market efficiency
7.01 Cooperation in labor-employer relations..............................40.................... ..................4.8 ................4.4 ................4.9 ....................6.3 Denmark .................................
7.02 Flexibility of wage determination...........................................72.................... ..................5.1 ................5.0 ................4.6 ....................6.4 Hong Kong SAR.....................
7.03 Non-wage labor costs (% of worker’s salary)*...................92.................... ................23.9 ..............14.3 ..............22.9 ....................0.0 Multiple (7) ...................=..........n/a
7.04 Rigidity of Employment Index (0-100, 100 is worst)*...........63.................... ................38.0 ..............37.3 ..............34.0 ....................0.0 Multiple (3) ...................=..........
7.05 Hiring and firing practices ......................................................75.................... ..................3.7 ................3.6 ................3.6 ....................5.8 Singapore ...............................
7.06 Firing costs (in weeks of wage)* ...........................................95.................... ................74.3 ..............63.9 ..............33.5 ....................0.0 Multiple (3) ...................=..........
7.07 Pay and productivity ................................................................44.................... ..................4.6 ................4.1 ................4.5 ....................6.0 Hong Kong SAR.....................
7.08 Reliance on professional management ................................62.................... ..................4.6 ................4.4 ................5.5 ....................6.4 Sweden...................................
7.09 Brain drain .................................................................................51.................... ..................3.6 ................3.3 ................4.4 ....................6.0 United States .........................
7.10 Female participation in labor force (% of male participation)* .........112.................... ................51.3 ..............67.3 ..............79.8 ................102.7 Mozambique ................=..........n/a
8th pillar: Financial market sophistication

8.01 Financial market sophistication .............................................49.................... ..................4.6 ................4.0 ................5.6 ....................6.7 Switzerland ............................
8.02 Financing through local equity market .................................68.................... ..................4.6 ................4.1 ................5.3 ....................6.2 Sweden...................................
8.03 Ease of access to loans ..........................................................88.................... ..................2.8 ................3.0 ................4.4 ....................5.5 Denmark .................................
8.04 Venture capital availability......................................................86.................... ..................2.8 ................2.8 ................4.2 ....................5.3 United States .........................
8.05 Restriction on capital flows ....................................................31.................... ..................5.9 ................5.1 ................5.8 ....................6.6 Uruguay ........................n/a ........n/a
8.06 Strength of Investor Protection (0-10, 10 is best)* .............25.................... ..................6.0 ................4.8 ................5.8 ....................9.7 New Zealand..........................n/a
8.07 Soundness of banks.................................................................61.................... ..................5.7 ................5.5 ................6.3 ....................6.9 Switzerland ............................ 41
8.08 Regulation of securities exchanges......................................42.................... ..................5.1 ................4.6 ................5.5 ....................6.3 Sweden.........................n/a ........n/a
8.09 Strength of legal rights (0-10, 10 is best)*..........................118.................... ..................2.0 ................4.0 ................6.1 ..................10.0 Multiple (2) ...................=..........
9th pillar: Technological readiness

9.01 Availability of latest technologies..........................................73.................... ..................4.1 ................4.0 ................5.5 ....................6.5 Sweden...................................
9.02 Firm-level technology absorption ..........................................88.................... ..................4.4 ................4.4 ................5.5 ....................6.5 Iceland ....................................
9.03 Laws relating to ICT .................................................................53.................... ..................4.0 ................3.3 ................5.0 ....................6.0 Denmark .................................
9.04 FDI and technology transfer ...................................................41.................... ..................5.2 ................4.8 ................5.2 ....................6.4 Ireland.....................................
9.05 Mobile telephone subscribers (per 100 pop.)*....................69.................... ................44.0 ..............45.3 ..............92.9 ................154.8 Luxembourg ...........................
9.06 Internet users (per 100 pop.)* ................................................59.................... ................16.9 ..............16.2 ..............48.6 ..................87.8 Iceland ....................................
9.07 Personal computers (per 100 pop.)* .....................................54.................... ................13.1 ................8.7 ..............46.7 ..................86.2 Switzerland ............................
9.08 Broadband internet subscribers (per 100 pop.) ..................50.................... ..................2.2 ................2.3 ..............14.0 ..................26.5 Iceland ..........................=..........n/a
10th pillar: Market size

10.01 Domestic market size index*..................................................12.................... ..................5.3 ................3.2 ................4.6 ....................7.0 United States .........................
10.02 Foreign market size index* .....................................................17.................... ..................5.4 ................3.5 ................5.0 ....................7.0 China .......................................
11th pillar: Business sophistication

11.01 Local supplier quantity ............................................................66.................... ..................4.7 ................4.5 ................5.4 ....................6.3 Germany .................................
11.02 Local supplier quality...............................................................49.................... ..................4.7 ................4.3 ................5.5 ....................6.5 Germany .................................
11.03 State of cluster development .................................................54.................... ..................3.6 ................3.3 ................4.3 ....................5.7 Taiwan, China ........................
11.04 Nature of competitive advantage ..........................................60.................... ..................3.5 ................3.4 ................4.9 ....................6.3 Germany .................................
11.05 Value chain breadth .................................................................46.................... ..................4.0 ................3.3 ................5.1 ....................6.3 Switzerland ............................
11.06 Control of international distribution ......................................71.................... ..................4.0 ................3.8 ................4.7 ....................5.5 Iceland ....................................
11.07 Production process sophistication........................................56.................... ..................3.9 ................3.5 ................5.2 ....................6.3 Germany .................................
11.08 Extent of marketing ..................................................................50.................... ..................4.8 ................4.5 ................5.5 ....................6.3 United States .........................
11.09 Willingness to delegate authority..........................................46.................... ..................4.1 ................3.8 ................4.9 ....................6.3 Sweden...................................

12.01 Capacity for innovation............................................................58.................... ..................3.3 ................3.0 ................4.7 ....................6.1 Germany .................................
12.02 Quality of scientific research institutions ............................65.................... ..................3.8 ................3.4 ................5.0 ....................6.2 Switzerland ............................
12.03 Company spending on R&D ....................................................69.................... ..................3.1 ................3.0 ................4.5 ....................6.1 Switzerland ............................
12.04 University-industry research collaboration .........................59.................... ..................3.2 ................2.9 ................4.4 ....................5.6 United States .........................
12.05 Government procurement of advanced technology products.......93.................... ..................3.3 ................3.3 ................4.1 ....................5.5 Singapore ...............................
12.06 Availability of scientists and engineers................................96.................... ..................3.8 ................3.9 ................5.2 ....................6.0 Finland.....................................
12.07 USPTA utility patents granted in 2006 (per mio pop.)*..........56.................... ..................0.6 ................1.1 ..............73.5 ................298.4 United States .........................
* Hard data
Note: For further details and explanation, please refer to the section "How to Read the Competitiveness Profiles" on page XXX.
Comparator Countries
Competitiveness Profiles
Comparator Countries Competitiveness Profile
Brazil
Key indicators
GDP (US$ billions), 2007................................................................................1,295.4
Current account balance (percent of GDP), 2006 .................................................1.3
GINI index, 2004...................................................................................................57.0
Competitiveness rankings
Rank Score Institutions
(out of 131) (1–7) 7
Innovation Infrastructure
Global Competitiveness Index 2007-2008 .........72 ......4.0 6
5
GCI 2006-2007 (out of 122) ......................................................66 ........4.1 Business Macroeconomic
4 stability
sophistication
Basic requirements...........................................................101 ........3.8 3
1st pillar: Institutions .........................................................104 ........3.3 2 Health and
2nd pillar: Infrastructure.....................................................78 ........3.1 Market size 1 primary
3rd pillar: Macroeconomic stability................................126 ........3.7 education

Technological Higher education
Efficiency enhancers..........................................................55 ........4.1 readiness and training
44
7th pillar: Labor market efficiency ..................................104 ........4.0 Labor market efficiency
Brazil Mexico
10th pillar: Market size........................................................10 ........5.4
12th pillar: Innovation..........................................................44 ........3.5
Source: World Economic Forum, Global Competitiveness Report 2007-2008

Brazil Mexico
Tax regulations ........................................................18.2% .........9.3%
Tax rates ...................................................................16.0% .........6.3%
Restrictive labour regulations...............................12.2% .........8.6%
Corruption...................................................................8.1% .......12.5%
Policy instability.........................................................5.0% .........7.6%
Crime and theft ..........................................................3.0% .......10.6%
Inflation .......................................................................1.3% .........0.6%
Brazil
Mexico
Government instability/coups .................................1.1% .........0.2%
0 5 10 15 20 25
Brazil
12,000
Brazil 10,000
Western Hemisphere 8,000
6,000
4,000
2,000
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

45

160
All commodities 140
120
Machinery and transport
equipment 100
Food and live anmals 80
chefly for food 60
Manufactured goods 40
classified chiefly by 20
materials 0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

2005................................................................................47.6
European Union:
22.1%
Others:
42.1%
United
States: 18%
Mexico: 3.2% Argentina: 8.5%

China: 6.1%
Source: WTO, 2007
Brazil
The Global Competitiveness Index in detail + Better than Mexico (45 times) – Worse than Mexico (65 times)
1st pillar: Institutions 6.07 Time required to start a business*.........................123 ....– .152.0
1.01 Property rights ..........................................................70 ...+ .....4.5 6.08 Agricultural policy costs............................................40 ...+ .....4.1
1.02 Intellectual property protection ................................73 ....– .....3.3 6.09 Prevalence of trade barriers......................................98 ....– .....4.0
1.03 Diversion of public funds ........................................124 ....– .....2.2 6.10 Trade-weighted tariff rate* .......................................80 ...+ .....8.2
1.04 Public trust of politicians.........................................126 ....– .....1.4 6.11 Prevalence of foreign ownership..............................95 ....– .....4.6
1.05 Judicial independence ..............................................89 ....– .....3.1 6.12 Business impact of rules on FDI ..............................96 ....– .....4.6
1.06 Favoritism in decisions of government officials .......91 ....– .....2.7 6.13 Burden of customs procedures..............................124 ....– .....2.5
1.07 Wastefulness of government spending..................127 ....– .....1.9 6.14 Degree of customer orientation ...............................61 ....– .....4.7
1.08 Burden of government regulation...........................128 ....– .....1.9 6.15 Buyer sophistication .................................................65 ....– .....3.8
1.09 Efficiency of legal framework .................................105 ....– .....2.9
1.11 Business costs of terrorism......................................10 ...+ .....6.2 7.01 Cooperation in labor-employer relations ...................96 ....– .....4.2
1.12 Business costs of crime and violence....................121 ....– .....2.8 7.02 Flexibility of wage determination............................108 ....– .....4.2
1.13 Organized crime......................................................125 ....– .....3.3 7.03 Non-wage labor costs* ...........................................119 ....– ...37.5
1.14 Reliability of police services ...................................120 ....– .....2.6 7.04 Rigidity of employment* ..........................................73 ....– ...42.0
1.15 Ethical behavior of firms...........................................98 ....– .....3.8 7.05 Hiring and firing practices.......................................121 ....– .....2.7
1.16 Strength of auditing and reporting standards...........63 ...+ .....4.8 7.06 Firing costs* .............................................................65 ...+ ...36.8
1.17 Efficacy of corporate boards.....................................65 ...+ .....4.6 7.07 Pay and productivity .................................................93 ....– .....3.8
7.09 Brain drain ................................................................40 ...+ .....3.9
2nd pillar: Infrastructure 7.10 Female participation in labor force* .........................72 ...+ .....0.7
2.01 Quality of overall infrastructure ................................97 ....– .....2.7
2.02 Quality of roads.......................................................110 ....– .....2.3 8th pillar: Financial market sophistication
2.03 Quality of railroad infrastructure ...............................91 ....– .....1.7 8.01 Financial market sophistication ................................31 ...+ .....5.4
2.04 Quality of port infrastructure...................................116 ....– .....2.6 8.02 Financing through local equity market .....................61 ...+ .....4.8
2.05 Quality of air transport infrastructure .......................87 ....– .....4.0 8.03 Ease of access to loans............................................89 ....– .....2.8
2.07 Quality of electricity supply ......................................61 ...+ .....4.9 8.04 Venture capital availability .......................................103 ....– .....2.5
2.08 Telephone lines*.......................................................60 ...+ ...21.4 8.05 Restriction on capital flows ....................................123 ....– .....3.1
8.06 Strength of investor protection* ..............................45 ....– .....5.3
46 3.01 Government surplus/deficit* ....................................98 ....– ....-3.0 8.08 Regulation of securities exchanges..........................41 ...+ .....5.1
3.02 National savings rate* ..............................................82 ....– ...18.3 8.09 Legal rights index*..................................................118....=.....2.0
3.03 Inflation*...................................................................61 ....– .....4.2
3.04 Interest rate spread* ..............................................127 ....– ...36.9 9th pillar: Technological readiness
3.05 Government debt* ...................................................99 ....– ...65.5 9.01 Availability of latest technologies .............................60 ...+ .....4.3
9.02 Firm-level technology absorption..............................55 ...+ .....4.9
4th pillar: Health and primary education 9.03 Laws relating to ICT .................................................52 ...+ .....4.0
4.01 Business impact of malaria .....................................n/a 9.04 FDI and technology transfer .....................................47 ....– .....5.1
4.02 Malaria incidence* ..................................................105 ....– .254.2 9.05 Mobile telephone subscribers* ................................68 ...+ ...46.2
4.03 Business impact of tuberculosis ..............................47 ....– .....6.2 9.06 Internet users* .........................................................58 ...+ ....17.2
4.05 Business impact of HIV/AIDS...................................61 ....– .....5.3 9.08 Broadband Internet subscribers* .............................54 ....– .....1.8
4.06 HIV prevalence* .......................................................77 ....– .....0.5
4.07 Infant mortality* .......................................................91 ....– ...32.0 10th pillar: Market size
4.09 Quality of primary education ..................................123 ....– .....2.2 10.02 Foreign market size*.................................................10 ...+ .....5.2
4.10 Primary enrollment* .................................................45 ....– ...95.3
4.11 Education expenditure*............................................64 ....– .....4.1 11th pillar: Business sophistication
5th pillar: Higher education and training 11.02 Local supplier quality ................................................40 ...+ .....5.0
5.01 Secondary enrollment* ............................................21 ...+ .102.0 11.03 State of cluster development ...................................41 ...+ .....3.9
5.02 Tertiary enrollment*..................................................75 ....– ...22.3 11.04 Nature of competitive advantage .............................99 ....– .....3.0
5.04 Quality of math and science education ..................117 ....– .....2.8 11.06 Control of international distribution ..........................49 ...+ .....4.3
5.05 Quality of management schools...............................66 ....– .....4.1 11.07 Production process sophistication............................36 ...+ .....4.4
5.06 Internet access in schools........................................70 ....– .....3.3 11.08 Extent of marketing..................................................33 ...+ .....5.2
5.08 Extent of staff training..............................................45 ...+ .....4.2
6.01 Intensity of local competition ...................................45 ...+ .....5.3 12.02 Quality of scientific research institutions .................42 ...+ .....4.3
6.02 Extent of market dominance ....................................45 ...+ .....4.2 12.03 Company spending on R&D .....................................35 ...+ .....3.8
6.03 Effectiveness of anti-monopoly policy......................47 ...+ .....4.3 12.04 University-industry research collaboration................46 ...+ .....3.4
6.04 Extent and effect of taxation ..................................131 ....– .....1.5 12.05 Gov’t procurement of advanced tech products........67 ...+ .....3.6
6.05 Total tax rate* .........................................................109 ....– ...71.7 12.06 Availability of scientists and engineers.....................60 ...+ .....4.4
6.06 No. of procedures required to start a business*....121 ....– ....17.0 12.07 Utility patents* .........................................................55 ...+ .....0.6
* Hard data
Note: For further details and explanation, please refer to the section "How to Read the Country/Economy Profiles" at the beginning of this chapter.
Chile
Key indicators
Total population (millions), 2007........................................................................16.6
GDP (US$ billions), 2007...................................................................................160.8
GINI index, 2004...................................................................................................54.9
(out of 131) (1–7) 7
5
4 stability
sophistication
Basic requirements.............................................................33 ........5.2 3
1st pillar: Institutions ...........................................................29 ........4.8 2 Health and
3rd pillar: Macroeconomic stability..................................12 ........5.9 education

48
7th pillar: Labor market efficiency ....................................14 ........5.0 Labor market efficiency
Chile Mexico

Chile Mexico
Inadequately educated workforce.......................13.5% .........3.8%
Tax regulations ........................................................10.4% .........9.3%
Tax rates .....................................................................6.0% .........6.3%
Crime and theft ..........................................................3.4% .......10.6%
Corruption...................................................................3.4% .......12.5%
Chile
Inflation .......................................................................0.1% .........0.6% Mexico
0 5 10 15 20 25
Chile
16,000
Chile 14,000
12,000
Western Hemisphere
10,000
8,000
6,000
4,000
2,000
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

10,000
8,000
6,000
4,000
2,000
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

49

60
All commodities 50
materials 30
Crude aterials, inedible, 20
except fuels
10
Food and live anmals
chefly for food 0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

2005..................................................................................9.6
European Union:
Others: 23.5%
31.4% Source: International Trade Center
United
Korea, States: 16.2%
Republic
of: 5.7%
China: 11.4% Japan: 11.8%
Source: WTO, 2007
Chile
1st pillar: Institutions 6.07 Time required to start a business* ..........................48....= ...27.0
1.01 Property rights ..........................................................40 ...+ .....5.4 6.08 Agricultural policy costs..............................................7 ...+ .....4.8
1.02 Intellectual property protection ................................49 ...+ .....4.0 6.09 Prevalence of trade barriers ......................................11 ...+ .....5.7
1.03 Diversion of public funds..........................................37 ...+ .....4.6 6.10 Trade-weighted tariff rate* .......................................64 ...+ .....6.0
1.04 Public trust of politicians ..........................................28 ...+ .....3.7 6.11 Prevalence of foreign ownership ..............................12 ...+ .....6.0
1.05 Judicial independence ..............................................54 ...+ .....4.2 6.12 Business impact of rules on FDI ..............................16 ...+ .....5.8
1.06 Favoritism in decisions of government officials .......31 ...+ .....3.8 6.13 Burden of customs procedures ................................10 ...+ .....5.5
1.07 Wastefulness of government spending ...................29 ...+ .....4.1 6.14 Degree of customer orientation ...............................46 ...+ .....4.9
1.08 Burden of government regulation ............................24 ...+ .....3.8 6.15 Buyer sophistication .................................................29 ...+ .....4.7
1.09 Efficiency of legal framework ...................................35 ...+ .....4.8
1.10 Transparency of government policymaking ..............19 ...+ .....5.1 7th pillar: Labor market efficiency
1.11 Business costs of terrorism .....................................28 ...+ .....6.0 7.01 Cooperation in labor-employer relations ...................29 ...+ .....5.0
1.12 Business costs of crime and violence......................65 ...+ .....4.6 7.02 Flexibility of wage determination ...............................4 ...+ .....6.1
1.13 Organized crime .......................................................28 ...+ .....6.1 7.03 Non-wage labor costs*.............................................12 ...+ .....3.4
1.14 Reliability of police services .....................................26 ...+ .....5.6 7.04 Rigidity of employment* ..........................................26 ...+ ...24.0
1.15 Ethical behavior of firms ...........................................18 ...+ .....5.5 7.05 Hiring and firing practices.........................................62 ...+ .....3.9
1.17 Efficacy of corporate boards.....................................15 ...+ .....5.5 7.07 Pay and productivity .................................................16 ...+ .....5.0
7.09 Brain drain ..................................................................7 ...+ .....5.4
2nd pillar: Infrastructure 7.10 Female participation in labor force*........................109 ...+ .....0.5
2.01 Quality of overall infrastructure ................................30 ...+ .....5.0
2.02 Quality of roads ........................................................22 ...+ .....5.4 8th pillar: Financial market sophistication
2.03 Quality of railroad infrastructure ...............................66 ...+ .....2.5 8.01 Financial market sophistication ................................27 ...+ .....5.5
2.04 Quality of port infrastructure ....................................34 ...+ .....4.8 8.02 Financing through local equity market .......................7 ...+ .....5.9
2.05 Quality of air transport infrastructure .......................31 ...+ .....5.7 8.03 Ease of access to loans............................................33 ...+ .....4.3
2.07 Quality of electricity supply ......................................39 ...+ .....5.6 8.04 Venture capital availability.........................................34 ...+ .....3.9
2.08 Telephone lines*.......................................................59 ...+ ...22.0 8.05 Restriction on capital flows ......................................40 ....– .....5.8
8.06 Strength of investor protection*...............................19 ...+ .....6.3
50 3.01 Government surplus/deficit*.....................................11 ...+ .....7.7 8.08 Regulation of securities exchanges............................7 ...+ .....6.0
3.02 National savings rate* ..............................................59 ...+ ...24.0 8.09 Legal rights index* ...................................................69 ...+ .....4.0
3.03 Inflation*...................................................................50 ...+ .....3.4
3.04 Interest rate spread* ................................................22 ...+ .....2.9 9th pillar: Technological readiness
3.05 Government debt* .....................................................5 ...+ .....5.4 9.01 Availability of latest technologies .............................34 ...+ .....5.1
4.01 Business impact of malaria ....................................n /a 9.04 FDI and technology transfer .....................................30 ...+ .....5.3
4.02 Malaria incidence*....................................................58 ...+ .....0.0 9.05 Mobile telephone subscribers* ................................51 ...+ ...67.8
4.03 Business impact of tuberculosis...............................10 ...+ .....6.7 9.06 Internet users* .........................................................39 ...+ ...28.9
4.04 Tuberculosis incidence* ...........................................32 ...+ ...14.6 9.07 Personal computers*................................................51 ...+ ...14.8
4.05 Business impact of HIV/AIDS...................................43 ...+ .....5.7 9.08 Broadband Internet subscribers* .............................38 ...+ .....4.5
4.06 HIV prevalence* .......................................................64....=.....0.3
4.07 Infant mortality* .......................................................39 ...+ .....8.0 10th pillar: Market size
4.08 Life expectancy* ......................................................31 ...+ ...77.0 10.01 Domestic market size*.............................................46 ....– .....4.0
4.09 Quality of primary education ..................................102 ....– .....2.7 10.02 Foreign market size* ................................................43 ....– .....4.5
4.11 Education expenditure* ...........................................73 ....– .....3.9 11th pillar: Business sophistication
5.01 Secondary enrollment* ............................................53 ...+ ...89.1 11.03 State of cluster development ...................................53 ...+ .....3.7
5.02 Tertiary enrollment*..................................................41 ...+ ...43.0 11.04 Nature of competitive advantage .............................52 ...+ .....3.6
5.03 Quality of the educational system............................78 ...+ .....3.4 11.05 Value chain breadth ..................................................48 ....– .....4.0
5.04 Quality of math and science education ..................107 ...+ .....3.0 11.06 Control of international distribution ..........................30 ...+ .....4.6
5.05 Quality of management schools...............................19 ...+ .....5.3 11.07 Production process sophistication............................31 ...+ .....4.7
5.06 Internet access in schools........................................39 ...+ .....4.5 11.08 Extent of marketing..................................................22 ...+ .....5.5
6.04 Extent and effect of taxation ....................................36 ...+ .....4.0 12.05 Gov't procurement of advanced tech products........40 ...+ .....3.9
6.05 Total tax rate* ..........................................................11 ...+ ...26.3 12.06 Availability of scientists and engineers.....................31 ...+ .....4.9
6.06 No. of procedures required to start a business* .....52 ....– .....9.0 12.07 Utility patents* .........................................................49 ...+ .....0.8
* Hard data
China
Key indicators
Total population (millions), 2007...................................................................1,331.4
GDP (US$ billions), 2007................................................................................3,248.5
Real growth in GDP (percent), 2007.................................................................11.5
Total reserves in months of imports, 2005 ......................................................13.5
GINI index, 2004...................................................................................................46.9
(out of 131) (1–7) 7
5
4 stability
sophistication
3rd pillar: Macroeconomic stability....................................7 ........6.0 education

52
8th pillar: Financial market sophistication.....................118 ........3.3
China Mexico
10th pillar: Market size..........................................................2 ........6.8

China Mexico
Access to financing................................................14.8% .......12.0%
Policy instability.......................................................11.6% .........7.6%
Corruption.................................................................11.6% .......12.5%
Tax regulations ..........................................................7.2% .........9.3%
Tax rates .....................................................................5.3% .........6.3%
Restrictive labour regulations.................................3.5% .........8.6%
Inflation .......................................................................2.5% .........0.6% China
Government instability/coups .................................2.3% .........0.2% Mexico
Crime and theft ..........................................................1.6% .......10.6%
0 5 10 15 20 25
China
10,000
China
8,000
Developing Asia
6,000
4,000
2,000
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

53

1,200
All commodities 1,000
equipment
600
Miscellaneous
manufactured acticles 400
materials 0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

United 2005................................................................................39.4
States: 21%
Others:
Korea, European Union:

Republic 18.8%
of: 4.6%
Japan: 9.5%
Hong Kong: 16%
Source: WTO, 2007
China
1st pillar: Institutions 6.07 Time required to start a business* ..........................70 ....– ...35.0
1.01 Property rights ..........................................................76 ...+ .....4.3 6.08 Agricultural policy costs..............................................8 ...+ .....4.8
1.02 Intellectual property protection ................................71 ....– .....3.4 6.09 Prevalence of trade barriers......................................78 ....– .....4.3
1.03 Diversion of public funds..........................................83 ....– .....3.2 6.10 Trade-weighted tariff rate* .......................................49 ...+ .....4.7
1.04 Public trust of politicians ..........................................45 ...+ .....3.1 6.11 Prevalence of foreign ownership ............................103 ....– .....4.4
1.05 Judicial independence ..............................................82 ....– .....3.4 6.12 Business impact of rules on FDI ..............................60 ....– .....5.3
1.06 Favoritism in decisions of government officials .......71 ...+ .....3.0 6.13 Burden of customs procedures................................48 ...+ .....4.2
1.07 Wastefulness of government spending ...................48 ...+ .....3.6 6.14 Degree of customer orientation ...............................79 ....– .....4.4
1.10 Transparency of government policymaking ..............88 ....– .....3.8 7th pillar: Labor market efficiency
1.11 Business costs of terrorism....................................109 ....– .....4.6 7.01 Cooperation in labor-employer relations ...................89 ....– .....4.3
1.12 Business costs of crime and violence......................73 ...+ .....4.4 7.02 Flexibility of wage determination .............................51 ...+ .....5.4
1.13 Organized crime .......................................................99 ...+ .....4.2 7.03 Non-wage labor costs*...........................................122 ....– ...44.0
1.15 Ethical behavior of firms .........................................101 ....– .....3.7 7.05 Hiring and firing practices.........................................41 ...+ .....4.3
1.16 Strength of auditing and reporting standards .........102 ....– .....3.8 7.06 Firing costs* ...........................................................107 ....– ...91.0
1.17 Efficacy of corporate boards ...................................115 ....– .....4.0 7.07 Pay and productivity .................................................15 ...+ .....5.0
1.18 Protection of minority shareholders’ interests........114 ....– .....3.6 7.08 Reliance on professional management ....................63 ....– .....4.5
7.09 Brain drain ................................................................38 ...+ .....3.9
2.03 Quality of railroad infrastructure ...............................33 ...+ .....3.9 8.01 Financial market sophistication ................................91 ....– .....3.2
2.04 Quality of port infrastructure ....................................66 ...+ .....4.0 8.02 Financing through local equity market .....................82 ....– .....4.2
2.05 Quality of air transport infrastructure .......................86 ....– .....4.1 8.03 Ease of access to loans..........................................100 ....– .....2.6
2.08 Telephone lines*.......................................................48 ...+ ...26.6 8.05 Restriction on capital flows.....................................114 ....– .....3.5
3rd pillar: Macroeconomic stability 8.07 Soundness of banks ...............................................128 ....– .....4.2
54 3.01 Government surplus/deficit* ....................................69 ....– ....-1.2 8.08 Regulation of securities exchanges.........................111 ....– .....3.4
3.02 National savings rate* ................................................7 ...+ ...51.2 8.09 Legal rights index*..................................................118....=.....2.0
3.03 Inflation*.....................................................................7 ...+ .....1.5
3.05 Government debt* ...................................................24 ....– ...22.0 9.01 Availability of latest technologies .............................79 ....– .....3.9
4th pillar: Health and primary education 9.03 Laws relating to ICT .................................................57 ....– .....3.9
4.01 Business impact of malaria ....................................n /a 9.04 FDI and technology transfer .....................................90 ....– .....4.5
4.02 Malaria incidence*....................................................75 ...+ .....3.1 9.05 Mobile telephone subscribers* ................................86 ....– ...29.9
4.03 Business impact of tuberculosis ..............................85 ....– .....5.5 9.06 Internet users* .........................................................80 ....– .....8.6
4.04 Tuberculosis incidence* ...........................................87 ....– .100.3 9.07 Personal computers*................................................86 ....– .....4.1
4.06 HIV prevalence* .......................................................25 ...+ .....0.1
4.09 Quality of primary education ....................................48 ...+ .....4.1 10.02 Foreign market size* ..................................................1 ...+ .....7.0
4.11 Education expenditure* ..........................................111 ....– .....2.0 11th pillar: Business sophistication
5th pillar: Higher education and training 11.02 Local supplier quality ................................................73 ....– .....4.3
5.01 Secondary enrollment* ............................................91 ....– ...72.5 11.03 State of cluster development ...................................29 ...+ .....4.3
5.04 Quality of math and science education....................57 ...+ .....4.4 11.06 Control of international distribution ..........................63 ...+ .....4.0
5.05 Quality of management schools...............................90 ....– .....3.6 11.07 Production process sophistication............................81 ....– .....3.3
5.06 Internet access in schools........................................46 ...+ .....4.0 11.08 Extent of marketing..................................................80 ....– .....4.0
5.07 Local availability of research and training services...39 ...+ .....4.4 11.09 Willingness to delegate authority.............................72 ....– .....3.8
6.05 Total tax rate* ........................................................114 ....– ...77.1 12.06 Availability of scientists and engineers.....................78 ...+ .....4.2
6.06 No. of procedures required to start a business* ....101 ....– ...13.0 12.07 Utility patents* .........................................................59 ....– .....0.5
* Hard data
Hungary
Key indicators
GDP (US$ billions), 2007...................................................................................136.4
GDP per capita (PPP, US$), 2007 ...............................................................13,560.4
GINI index, 2002...................................................................................................26.9
(out of 131) (1–7) 7
5
4 stability
sophistication

56
Hungary Mexico

Hungary Mexico
Tax regulations ........................................................16.7% .........9.3%
Tax rates ...................................................................15.0% .........6.3%
Corruption...................................................................7.4% .......12.5%
Inflation .......................................................................5.3% .........0.6%
Government instability/coups .................................1.2% .........0.2% Hungary
Crime and theft ..........................................................0.8% .......10.6% Mexico
0 5 10 15 20 25
Hungary
35,000
Hungary 30,000
Euro area 25,000
20,000
15,000
10,000
5,000
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

57

80
All commodities 70
60
Machinery and
transport equipment 50
materials 20
Miscellaneus 10
manufactured articles 0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

2005................................................................................25.8
European Union:
Romania: 4%
United States: 2.7%
Russian Federation: 2.7%
Ukraine: 1.7%
Others:
14.5%
Source: WTO, 2007
Hungary
1.01 Property rights ..........................................................37 ...+ .....5.4 6.08 Agricultural policy costs...........................................111 ....– .....3.3
1.02 Intellectual property protection ................................37 ...+ .....4.4 6.09 Prevalence of trade barriers......................................19 ...+ .....5.6
1.03 Diversion of public funds..........................................56 ...+ .....3.8 6.10 Trade-weighted tariff rate*........................................13 ...+ .....3.4
1.05 Judicial independence ..............................................49 ...+ .....4.4 6.12 Business impact of rules on FDI ..............................31 ...+ .....5.6
1.06 Favoritism in decisions of government officials .......98 ....– .....2.6 6.13 Burden of customs procedures................................44 ...+ .....4.3
1.07 Wastefulness of government spending ..................117 ....– .....2.5 6.14 Degree of customer orientation ...............................86 ....– .....4.3
1.08 Burden of government regulation ...........................110 ...+ .....2.6 6.15 Buyer sophistication .................................................91 ....– .....3.3
1.10 Transparency of government policymaking ..............94 ....– .....3.7 7th pillar: Labor market efficiency
1.11 Business costs of terrorism......................................11 ...+ .....6.2 7.01 Cooperation in labor-employer relations ...................43 ....– .....4.8
1.13 Organized crime .......................................................48 ...+ .....5.5 7.03 Non-wage labor costs* ...........................................117 ....– ...35.2
1.15 Ethical behavior of firms...........................................85 ....– .....3.9 7.05 Hiring and firing practices.........................................71 ...+ .....3.8
7.09 Brain drain ................................................................55 ....– .....3.5
2.02 Quality of roads ........................................................64 ....– .....3.5 8th pillar: Financial market sophistication
2.04 Quality of port infrastructure ....................................71 ...+ .....3.7 8.02 Financing through local equity market......................76 ....– .....4.3
2.05 Quality of air transport infrastructure .......................72 ....– .....4.4 8.03 Ease of access to loans............................................51 ...+ .....3.7
2.08 Telephone lines*.......................................................35 ...+ ...33.2 8.05 Restriction on capital flows ......................................29 ...+ .....6.0
3rd pillar: Macroeconomic stability 8.07 Soundness of banks .................................................73 ....– .....5.5
58 3.01 Government surplus/deficit* ..................................126 ....– ....-9.2 8.08 Regulation of securities exchanges..........................46 ....– .....5.0
3.02 National savings rate* ..............................................92 ....– ...15.8 8.09 Legal rights index* ...................................................27 ...+ .....6.0
3.03 Inflation*...................................................................59 ....– .....3.9
3.05 Government debt*..................................................100 ....– ...66.0 9.01 Availability of latest technologies .............................56 ...+ .....4.5
4.02 Malaria incidence*......................................................1 ...+ .....0.0 9.05 Mobile telephone subscribers* ................................25 ...+ ...92.3
4.03 Business impact of tuberculosis ..............................46 ....– .....6.2 9.06 Internet users* .........................................................38 ...+ ...29.7
4.04 Tuberculosis incidence* ...........................................38 ...+ ...21.7 9.07 Personal computers*................................................49 ...+ ...14.9
4.06 HIV prevalence* .......................................................25 ...+ .....0.1
4.08 Life expectancy* ......................................................51 ....– ...73.0 10.01 Domestic market size*.............................................43 ....– .....4.1
4.09 Quality of primary education ....................................37 ...+ .....4.5 10.02 Foreign market size* ................................................35 ....– .....4.8
4.11 Education expenditure* ...........................................19 ...+ .....5.8 11th pillar: Business sophistication
11.01 Local supplier quantity..............................................69 ....– .....4.7
5.01 Secondary enrollment* ............................................37 ...+ ...96.5 11.03 State of cluster development .....................................6 ...+ .....4.9
5.02 Tertiary enrollment*..................................................25 ...+ ...59.6 11.04 Nature of competitive advantage .............................54 ...+ .....3.5
5.03 Quality of the educational system............................65 ...+ .....3.6 11.05 Value chain breadth ..................................................32 ...+ .....4.4
5.04 Quality of math and science education....................23 ...+ .....5.1 11.06 Control of international distribution.........................110 ....– .....3.5
5.07 Local availability of research and training services...61 ....– .....4.0 11.09 Willingness to delegate authority.............................85 ....– .....3.5
5.08 Extent of staff training ..............................................74 ....– .....3.6
6.04 Extent and effect of taxation...................................117 ....– .....2.5 12.05 Gov't procurement of advanced tech products........86 ...+ .....3.4
6.05 Total tax rate* ..........................................................99 ....– ...59.3 12.06 Availability of scientists and engineers.....................40 ...+ .....4.7
6.06 No. of procedures required to start a business*......16 ...+ .....6.0 12.07 Utility patents* .........................................................32 ...+ .....4.9
* Hard data
India
Key indicators
Total population (millions), 2007...................................................................1,135.6
GDP (US$ billions), 2007................................................................................1,089.9
GDP per capita (PPP, US$), 2007 ....................................................................964.6
Total reserves in months of imports, 2005 .......................................................n/a
GINI index, 2004-2005 .........................................................................................36.8
(out of 131) (1–7) 7
5
4 stability
sophistication
4th pillar: Health and primary education .......................101 ........4.9

60
India Mexico

India Mexico
Inadequate supply of infrastructure ....................24.0% .......10.8%
Corruption.................................................................11.9% .......12.5%
Tax regulations ..........................................................7.4% .........9.3%
Tax rates .....................................................................4.9% .........6.3%
Inflation .......................................................................3.0% .........0.6%
India
Crime and theft ..........................................................0.7% .......10.6%
0 5 10 15 20 25
India
7,000
India 6,000
Developing Asia 5,000
4,000
3,000
2,000
1,000
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

20,000
15,000
10,000
5,000
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

61

140
All commodities 120
materials
60
Miscellaneus
Mineral fules, lubricants 20

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

2005................................................................................32.0
European Union:
22.5%
Others:
40.4%
United
States: 16.9%
Singapore: 5.3% United Arab

China: 6.6% States: 8.3%
Source: WTO, 2007
India
1.01 Property rights ..........................................................44 ...+ .....5.3 6.08 Agricultural policy costs............................................68 ...+ .....3.8
1.03 Diversion of public funds..........................................64 ...+ .....3.6 6.10 Trade-weighted tariff rate* ......................................118 ....– ...14.7
1.04 Public trust of politicians ..........................................83 ...+ .....2.2 6.11 Prevalence of foreign ownership..............................63 ....– .....5.2
1.05 Judicial independence ..............................................26 ...+ .....5.3 6.12 Business impact of rules on FDI ..............................49 ....– .....5.4
1.07 Wastefulness of government spending ...................47 ...+ .....3.6 6.14 Degree of customer orientation ...............................33 ...+ .....5.1
1.11 Business costs of terrorism .....................................93 ....– .....4.9 7.01 Cooperation in labor-employer relations ...................56 ....– .....4.7
1.13 Organized crime .......................................................68 ...+ .....5.1 7.03 Non-wage labor costs*.............................................66 ...+ ...16.8
1.14 Reliability of police services .....................................60 ...+ .....4.4 7.04 Rigidity of employment* ..........................................70 ....– ...41.0
1.15 Ethical behavior of firms...........................................60 ....– .....4.2 7.05 Hiring and firing practices .......................................102 ....– .....3.1
7.09 Brain drain ................................................................45 ...+ .....3.8
2nd pillar: Infrastructure 7.10 Female participation in labor force* ........................116 ....– .....0.4
2.02 Quality of roads ........................................................82 ....– .....3.1 8th pillar: Financial market sophistication
2.04 Quality of port infrastructure ....................................80 ...+ .....3.5 8.02 Financing through local equity market......................13 ...+ .....5.7
2.07 Quality of electricity supply ....................................106 ....– .....3.1 8.04 Venture capital availability.........................................29 ...+ .....4.1
2.08 Telephone lines* .....................................................102 ....– .....4.5 8.05 Restriction on capital flows ......................................84 ....– .....4.4
8.06 Strength of investor protection* ..............................25....=.....6.0
62 3.01 Government surplus/deficit* ..................................125 ....– ....-7.5 8.08 Regulation of securities exchanges..........................30 ...+ .....5.5
3.03 Inflation*...................................................................81 ....– .....6.1
3.04 Interest rate spread* ................................................47 ....– .....4.2 9th pillar: Technological readiness
3.05 Government debt*..................................................109 ....– ...79.5 9.01 Availability of latest technologies .............................31 ...+ .....5.2
4.02 Malaria incidence* ..................................................101 ....– ..167.2 9.05 Mobile telephone subscribers*...............................114 ....– .....8.2
4.04 Tuberculosis incidence* ...........................................98 ....– ..167.8 9.07 Personal computers* ..............................................105 ....– .....1.5
4.05 Business impact of HIV/AIDS.................................100 ....– .....4.4 9.08 Broadband Internet subscribers* .............................88 ....– .....0.1
4.06 HIV prevalence* .......................................................94 ....– .....0.9
4.07 Infant mortality* .....................................................106 ....– ...62.0 10th pillar: Market size
4.08 Life expectancy*.....................................................104 ....– ...62.0 10.01 Domestic market size*...............................................3 ...+ .....6.2
11.01 Local supplier quantity................................................6 ...+ .....5.8
5.01 Secondary enrollment*...........................................103 ....– ...53.5 11.03 State of cluster development ...................................24 ...+ .....4.4
5.02 Tertiary enrollment*..................................................98 ....– ....11.8 11.04 Nature of competitive advantage .............................75 ....– .....3.3
5.04 Quality of math and science education ....................11 ...+ .....5.4 11.06 Control of international distribution ..........................31 ...+ .....4.6
5.05 Quality of management schools.................................8 ...+ .....5.7 11.07 Production process sophistication............................41 ...+ .....4.3
5.06 Internet access in schools........................................56 ...+ .....3.7 11.08 Extent of marketing..................................................30 ...+ .....5.2
6.05 Total tax rate* ........................................................116 ....– ...81.1 12.06 Availability of scientists and engineers.......................4 ...+ .....5.9
6.06 No. of procedures required to start a business* .....85 ....– ....11.0 12.07 Utility patents* .........................................................62 ....– .....0.4
* Hard data
Indonesia
Key indicators
GDP (US$ billions), 2007...................................................................................410.3
GINI index, 2002...................................................................................................34.3
(out of 131) (1–7) 7
5
4 stability
sophistication

64
Indonesia Mexico

Indonesia Mexico
Inadequate supply of infrastructure ....................20.5% .......10.8%
Tax regulations ..........................................................8.0% .........9.3%
Inflation .......................................................................5.5% .........0.6%
Corruption...................................................................4.2% .......12.5%
Tax rates .....................................................................2.0% .........6.3%
Indonesia
Mexico
Crime and theft ..........................................................0.5% .......10.6%
0 5 10 15 20 25
Indonesia
7,000
Indonesia 6,000
Developing Asia 5,000
4,000
3,000
2,000
1,000
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

10,000
8,000
6,000
4,000
2,000
0
-2,000
-4,000
-6,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

65

120
All commodities 100
Mineral fuels, lubricants 80
and related materials
60
Manufactured goods
materials
20
Machinery and transport
equipment 0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Japan: 2005................................................................................30.6
21.6%
Others:
38.1%
European
Union: 11.9%
United
China: 8.3% States: 11.2%
Singapore: 8.9%
Source: WTO, 2007
Indonesia
1st pillar: Institutions 6.07 Time required to start a business* .........................119 ....– ...97.0
1.01 Property rights ........................................................115 ....– .....3.4 6.08 Agricultural policy costs..............................................4 ...+ .....5.0
1.02 Intellectual property protection ................................87 ....– .....3.1 6.09 Prevalence of trade barriers......................................30 ...+ .....5.2
1.05 Judicial independence ..............................................98 ....– .....3.0 6.12 Business impact of rules on FDI...............................11 ...+ .....5.9
1.06 Favoritism in decisions of government officials .......41 ...+ .....3.6 6.13 Burden of customs procedures ..............................101 ....– .....3.0
1.07 Wastefulness of government spending .....................7 ...+ .....5.0 6.14 Degree of customer orientation ...............................22 ...+ .....5.4
1.08 Burden of government regulation ............................22 ...+ .....3.9 6.15 Buyer sophistication ...................................................9 ...+ .....5.4
1.11 Business costs of terrorism .....................................30 ...+ .....5.9 7.01 Cooperation in labor-employer relations ...................16 ...+ .....5.4
1.13 Organized crime .......................................................37 ...+ .....5.7 7.03 Non-wage labor costs*.............................................32 ...+ ...10.0
1.15 Ethical behavior of firms...........................................97 ....– .....3.8 7.05 Hiring and firing practices.........................................34 ...+ .....4.5
1.16 Strength of auditing and reporting standards...........72 ....– .....4.5 7.06 Firing costs*............................................................116 ....– .108.3
1.17 Efficacy of corporate boards.....................................24 ...+ .....5.4 7.07 Pay and productivity ...................................................5 ...+ .....5.5
1.18 Protection of minority shareholders’ interests..........11 ...+ .....5.7 7.08 Reliance on professional management ....................25 ...+ .....5.4
7.09 Brain drain.................................................................19 ...+ .....4.8
2nd pillar: Infrastructure 7.10 Female participation in labor force* ........................101 ...+ .....0.6
2.01 Quality of overall infrastructure...............................102 ....– .....2.6
2.02 Quality of roads.......................................................113 ....– .....2.3 8th pillar: Financial market sophistication
2.04 Quality of port infrastructure...................................113 ....– .....2.7 8.02 Financing through local equity market .......................2 ...+ .....6.0
2.07 Quality of electricity supply ......................................85 ....– .....4.0 8.04 Venture capital availability.........................................35 ...+ .....3.9
2.08 Telephone lines*.....................................................100 ....– .....5.7 8.05 Restriction on capital flows ......................................32 ....– .....5.9
66 3.01 Government surplus/deficit* ....................................69 ....– ....-1.2 8.08 Regulation of securities exchanges..........................27 ...+ .....5.6
3.03 Inflation* .................................................................126 ....– ...13.1
4.01 Business impact of malaria ....................................n /a 9.04 FDI and technology transfer .......................................4 ...+ .....5.9
4.02 Malaria incidence*....................................................96 ....– ...98.9 9.05 Mobile telephone subscribers* ................................94 ....– ...21.1
4.04 Tuberculosis incidence* ..........................................110 ....– .239.2 9.07 Personal computers* ..............................................107 ....– .....1.4
4.05 Business impact of HIV/AIDS...................................28 ...+ .....6.0 9.08 Broadband Internet subscribers* ...........................102 ....– .....0.0
4.06 HIV prevalence* .......................................................25 ...+ .....0.1
4.08 Life expectancy* ......................................................89 ....– ...67.0 10.01 Domestic market size* .............................................15 ....– .....5.1
4.11 Education expenditure* .........................................120 ....– .....0.9 11th pillar: Business sophistication
5.01 Secondary enrollment* ............................................96 ....– ...64.1 11.03 State of cluster development .....................................8 ...+ .....4.8
5.02 Tertiary enrollment*..................................................86 ....– ...16.7 11.04 Nature of competitive advantage .............................53 ...+ .....3.5
5.05 Quality of management schools...............................32 ...+ .....4.9 11.07 Production process sophistication............................73 ....– .....3.5
5.06 Internet access in schools........................................64 ....– .....3.4 11.08 Extent of marketing..................................................37 ...+ .....5.0
6.03 Effectiveness of anti-monopoly policy......................25 ...+ .....5.1 12.04 University-industry research collaboration................64 ....– .....3.1
6.04 Extent and effect of taxation ......................................8 ...+ .....5.4 12.05 Gov't procurement of advanced tech products........66 ...+ .....3.6
6.06 No. of procedures required to start a business* .....95 ....– ...12.0 12.07 Utility patents* .........................................................87 ....– .....0.0
* Hard data
Korea, Rep.
Key indicators
GDP (US$ billions), 2007...................................................................................949.7
GDP per capita (PPP, US$), 2007 ...............................................................19,624.4
GINI index, 1998...................................................................................................31.6
(out of 131) (1–7) 7
5
4 stability
sophistication
3rd pillar: Macroeconomic stability....................................8 ........6.0 education

5th pillar: Higher education and training ...........................6 ........5.7
68
9th pillar: Technological readiness.....................................7 ........5.5
Korea, Rep. Mexico
Innovation factors .................................................................7 ........5.4
11th pillar: Business sophistication....................................9 ........5.5
12th pillar: Innovation............................................................8 ........5.4

Korea, Rep. Mexico
Tax rates ...................................................................12.2% .........6.3%
Inflation .......................................................................8.3% .........0.6%
Tax regulations ..........................................................6.9% .........9.3%
Corruption...................................................................4.0% .......12.5%
Inadequate supply of infrastructure ......................2.5% .......10.8% Korea, Rep.
Inadequately educated workforce.........................2.5% .........3.8% Mexico
Crime and theft ..........................................................0.3% .......10.6%
0 5 10 15 20 25
Korea, Rep.
35,000
Korea, Rep. 30,000
Euro area 25,000
20,000
15,000
10,000
5,000
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

12,000
10,000
8,000
6,000
4,000
2,000
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

69

350
All commodities 300
equipment 200
materials 100
Miscellaneus 50
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

China: 2005................................................................................22.4
21.3%
Others: Source: International Trade Center
36.5%
European
Union: 14.9%
Hong Kong: 5.8%

Japan: 8.2% United
States: 13.3%
Source: WTO, 2007
Korea, Rep.
1st pillar: Institutions 6.07 Time required to start a business* ..........................37 ...+ ...22.0
1.01 Property rights ..........................................................24 ...+ .....5.7 6.08 Agricultural policy costs ............................................16 ...+ .....4.5
1.06 Favoritism in decisions of government officials........15 ...+ .....4.7 6.13 Burden of customs procedures..................................4 ...+ .....5.9
1.07 Wastefulness of government spending ...................22 ...+ .....4.3 6.14 Degree of customer orientation .................................4 ...+ .....5.9
1.08 Burden of government regulation ..............................8 ...+ .....4.3 6.15 Buyer sophistication ...................................................2 ...+ .....5.7
1.11 Business costs of terrorism .....................................78 ....– .....5.3 7.01 Cooperation in labor-employer relations ...................55 ....– .....4.7
1.13 Organized crime .......................................................50 ...+ .....5.4 7.03 Non-wage labor costs*.............................................71 ...+ ....17.5
1.15 Ethical behavior of firms...........................................25 ...+ .....5.2 7.05 Hiring and firing practices.........................................23 ...+ .....4.7
1.16 Strength of auditing and reporting standards...........35 ...+ .....5.4 7.06 Firing costs* ...........................................................107 ....– ...91.0
1.17 Efficacy of corporate boards.....................................30 ...+ .....5.2 7.07 Pay and productivity ...................................................9 ...+ .....5.2
7.09 Brain drain ................................................................20 ...+ .....4.8
2.01 Quality of overall infrastructure.................................19 ...+ .....5.6
2.04 Quality of port infrastructure ....................................20 ...+ .....5.5 8.02 Financing through local equity market .....................28 ...+ .....5.5
2.07 Quality of electricity supply ......................................19 ...+ .....6.2 8.04 Venture capital availability .........................................17 ...+ .....4.5
2.08 Telephone lines*.......................................................19 ...+ ...49.2 8.05 Restriction on capital flows ......................................35 ....– .....5.9
70 3.01 Government surplus/deficit* ....................................34 ...+ .....1.8 8.08 Regulation of securities exchanges ..........................11 ...+ .....5.9
3.03 Inflation*...................................................................21 ...+ .....2.2
3.04 Interest rate spread* ..................................................4 ...+ .....1.4 9th pillar: Technological readiness
4th pillar: Health and primary education 9.03 Laws relating to ICT ...................................................7 ...+ .....5.7
4.02 Malaria incidence* ....................................................74 ...+ .....2.3 9.05 Mobile telephone subscribers* ................................42 ...+ ...79.4
4.03 Business impact of tuberculosis ..............................87 ....– .....5.4 9.06 Internet users* ...........................................................6 ...+ ...68.4
4.05 Business impact of HIV/AIDS...................................70 ....– .....5.2 9.08 Broadband Internet subscribers* ...............................2 ...+ ...25.2
4.06 HIV prevalence* .........................................................1 ...+ ..<0.1
4.08 Life expectancy* ......................................................31 ...+ ...77.0 10.01 Domestic market size* .............................................13 ....– .....5.3
4.09 Quality of primary education ....................................23 ...+ .....5.1 10.02 Foreign market size*.................................................11 ...+ .....5.6
4.10 Primary enrollment* ...................................................4 ...+ ...99.4
11.01 Local supplier quantity................................................7 ...+ .....5.8
5.01 Secondary enrollment* ............................................48 ...+ ...92.9 11.03 State of cluster development .....................................3 ...+ .....5.1
5.02 Tertiary enrollment*....................................................1 ...+ ...89.9 11.04 Nature of competitive advantage .............................13 ...+ .....5.5
5.03 Quality of the educational system............................19 ...+ .....5.0 11.05 Value chain breadth...................................................11 ...+ .....5.7
5.04 Quality of math and science education ....................10 ...+ .....5.5 11.06 Control of international distribution ............................4 ...+ .....5.4
5.06 Internet access in schools..........................................4 ...+ .....6.3 11.08 Extent of marketing ..................................................13 ...+ .....5.8
5.07 Local availability of research and training services ...14 ...+ .....5.3 11.09 Willingness to delegate authority.............................21 ...+ .....5.0
5.08 Extent of staff training................................................5 ...+ .....5.6
6th pillar: Goods market efficiency 12.01 Capacity for innovation ...............................................7 ...+ .....5.5
6.01 Intensity of local competition ...................................23 ...+ .....5.6 12.02 Quality of scientific research institutions..................11 ...+ .....5.6
6.02 Extent of market dominance ....................................27 ...+ .....4.7 12.03 Company spending on R&D .......................................6 ...+ .....5.6
6.03 Effectiveness of anti-monopoly policy ......................19 ...+ .....5.3 12.04 University-industry research collaboration..................5 ...+ .....5.4
6.04 Extent and effect of taxation ....................................30 ...+ .....4.2 12.05 Gov't procurement of advanced tech products..........2 ...+ .....5.3
6.05 Total tax rate* ..........................................................18 ...+ ...30.9 12.06 Availability of scientists and engineers.....................13 ...+ .....5.5
6.06 No. of procedures required to start a business* .....95 ....– ...12.0 12.07 Utility patents* ...........................................................8 ...+ .123.1
* Hard data
Russian Federation
Key indicators
GDP (US$ billions), 2007................................................................................1,223.7
Total reserves in months of imports, 2005 ......................................................10.8
GINI index, 2002...................................................................................................39.9
(out of 131) (1–7) 7
5
4 stability
sophistication
1st pillar: Institutions .........................................................116 ........3.1 2 Health and

72
8th pillar: Financial market sophistication.....................109 ........3.6
Russian Federation Mexico

Russian Federation Mexico
Corruption.................................................................18.8% .......12.5%
Tax regulations ........................................................15.0% .........9.3%
Tax rates ...................................................................10.0% .........6.3%
Crime and theft ..........................................................8.4% .......10.6%
Inefficient government bureaucracy.....................8.3% .......15.6%
Inflation .......................................................................7.0% .........0.6%
Government instability/coups .................................2.0% .........0.2% Russian Federation
Restrictive labour regulations.................................1.8% .........8.6% Mexico
0 5 10 15 20 25
Russian Federation
16,000
Russian Federation 14,000
Commonwealth of 12,000
Independent States 10,000
and Mongolia 8,000
6,000
4,000
2,000
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

73

350
All commodities 300
Mineral fuels, lubricants 250
materials 100

equipment 0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

European Union: 2005..................................................................................6.9
56.7%
China: 5.2%
Others:
24.1% Ukraine: 5.0%
Turkey: 4.7%
Belarus: 4.3%
Source: WTO, 2007
Russian Federation
1.01 Property rights ........................................................122 ....– .....3.2 6.08 Agricultural policy costs ..........................................117 ....– .....3.1
1.02 Intellectual property protection ...............................115 ....– .....2.6 6.09 Prevalence of trade barriers....................................104 ....– .....3.9
1.03 Diversion of public funds..........................................94 ....– .....2.9 6.10 Trade-weighted tariff rate*......................................108 ....– ...12.9
1.04 Public trust of politicians.........................................104 ....– .....1.9 6.11 Prevalence of foreign ownership ............................129 ....– .....3.3
1.05 Judicial independence ............................................106 ....– .....2.7 6.12 Business impact of rules on FDI ............................127 ....– .....3.5
1.06 Favoritism in decisions of government officials......107 ....– .....2.4 6.13 Burden of customs procedures ..............................110 ....– .....2.9
1.07 Wastefulness of government spending..................100 ....– .....2.8 6.14 Degree of customer orientation ...............................67 ....– .....4.6
1.08 Burden of government regulation ...........................118 ....– .....2.5 6.15 Buyer sophistication .................................................58 ....– .....4.0
1.09 Efficiency of legal framework .................................106 ....– .....2.8
1.10 Transparency of government policymaking.............118 ....– .....3.1 7th pillar: Labor market efficiency
1.11 Business costs of terrorism....................................108 ....– .....4.7 7.01 Cooperation in labor-employer relations ...................67 ....– .....4.5
1.13 Organized crime......................................................103 ...+ .....4.0 7.03 Non-wage labor costs* ...........................................107 ....– ...31.0
1.14 Reliability of police services ....................................111 ...+ .....3.0 7.04 Rigidity of employment* ..........................................79 ....– ...44.0
1.15 Ethical behavior of firms .........................................120 ....– .....3.3 7.05 Hiring and firing practices.........................................15 ...+ .....5.0
1.16 Strength of auditing and reporting standards...........95 ....– .....3.9 7.06 Firing costs* .............................................................27 ...+ ....17.3
1.17 Efficacy of corporate boards.....................................38 ...+ .....5.0 7.07 Pay and productivity .................................................14 ...+ .....5.0
1.18 Protection of minority shareholders’ interests .......125 ....– .....3.1 7.08 Reliance on professional management ....................70 ....– .....4.5
7.09 Brain drain ................................................................49 ...+ .....3.7
2nd pillar: Infrastructure 7.10 Female participation in labor force*..........................18 ...+ .....0.9
2.02 Quality of roads ......................................................106 ....– .....2.4 8th pillar: Financial market sophistication
2.04 Quality of port infrastructure ....................................72 ...+ .....3.7 8.02 Financing through local equity market .....................81 ....– .....4.2
2.08 Telephone lines*.......................................................44 ...+ ...27.9 8.05 Restriction on capital flows.....................................118 ....– .....3.3
74 3.01 Government surplus/deficit* ......................................9 ...+ .....9.2 8.08 Regulation of securities exchanges ........................103 ....– .....3.6
3.03 Inflation* .................................................................113 ....– .....9.7
3.05 Government debt*....................................................11 ...+ .....9.0 9.01 Availability of latest technologies .............................99 ....– .....3.4
9.02 Firm-level technology absorption ............................103 ....– .....4.1
4.01 Business impact of malaria ....................................n /a 9.04 FDI and technology transfer....................................115 ....– .....4.1
4.02 Malaria incidence*......................................................1 ...+ .....0.0 9.05 Mobile telephone subscribers* ................................36 ...+ ...83.6
4.03 Business impact of tuberculosis ..............................59 ....– .....5.9 9.06 Internet users* .........................................................63 ....– ...15.2
4.04 Tuberculosis incidence* ...........................................90 ....– .119.0 9.07 Personal computers*................................................56 ....– ...12.1
4.05 Business impact of HIV/AIDS...................................39 ...+ .....5.8 9.08 Broadband Internet subscribers* .............................60 ....– .....1.1
4.06 HIV prevalence*......................................................100 ....– .....1.1
4.07 Infant mortality* .......................................................56 ...+ ...13.0 10th pillar: Market size
4.08 Life expectancy* ......................................................96 ....– ...65.0 10.01 Domestic market size* .............................................10 ...+ .....5.5
11.01 Local supplier quantity..............................................73 ....– .....4.7
5.01 Secondary enrollment* ............................................47 ...+ ...92.9 11.03 State of cluster development ...................................85 ....– .....3.3
5.02 Tertiary enrollment*..................................................14 ...+ ...68.2 11.04 Nature of competitive advantage............................115 ....– .....2.8
5.03 Quality of the educational system............................46 ...+ .....4.0 11.05 Value chain breadth.................................................120 ....– .....2.6
5.04 Quality of math and science education....................38 ...+ .....4.7 11.06 Control of international distribution ..........................92 ....– .....3.7
5.05 Quality of management schools...............................78 ....– .....3.8 11.07 Production process sophistication............................79 ....– .....3.4
5.07 Local availability of research and training services...79 ....– .....3.7 11.09 Willingness to delegate authority.............................82 ....– .....3.6
5.08 Extent of staff training..............................................96 ....– .....3.3
6.01 Intensity of local competition ...................................92 ....– .....4.5 12.02 Quality of scientific research institutions .................44 ...+ .....4.2
6.03 Effectiveness of anti-monopoly policy ....................106 ....– .....3.1 12.04 University-industry research collaboration................61 ....– .....3.2
6.04 Extent and effect of taxation ....................................97 ....– .....2.9 12.05 Gov't procurement of advanced tech products........83 ...+ .....3.4
6.06 No. of procedures required to start a business* .....27 ...+ .....7.0 12.07 Utility patents* .........................................................45 ...+ .....1.2
* Hard data
South Africa
Key indicators
GDP (US$ billions), 2007...................................................................................274.5
Unemployment (percent of total labour force), 2007 ....................................24.2
GINI index, 2000...................................................................................................57.8
(out of 131) (1–7) 7
5
4 stability
sophistication
4th pillar: Health and primary education .......................117 ........4.0

76
South Africa Mexico

South Africa Mexico
Inadequately educated workforce.......................19.3% .........3.8%
Crime and theft ........................................................18.9% .......10.6%
Corruption...................................................................3.4% .......12.5%
Tax rates .....................................................................3.3% .........6.3%
Tax regulations ..........................................................1.4% .........9.3% South Africa
Inflation .......................................................................0.3% .........0.6%
0 5 10 15 20 25
South Africa
16,000
South Africa 14,000
Africa 12,000
10,000
8,000
6,000
4,000
2,000
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
-1,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

77

60
All commodities 50
materials 30
equipment
10
Crude materials, inedible,
except fuels 0
2000 2001 2002 2003 2004 2005 2006

2005................................................................................30.5
European Union:
Others: Source: International Trade Center
35.4%
33.9%
Switzerland: 3.3%
China: 4.0% Japan: 11.9%
United
States: 11.5%
Source: WTO, 2007
South Africa
1.01 Property rights ..........................................................22 ...+ .....5.8 6.08 Agricultural policy costs ............................................14 ...+ .....4.5
1.07 Wastefulness of government spending ...................27 ...+ .....4.2 6.14 Degree of customer orientation ...............................64 ....– .....4.6
1.08 Burden of government regulation ...........................101 ...+ .....2.7 6.15 Buyer sophistication .................................................33 ...+ .....4.5
1.11 Business costs of terrorism .....................................43 ...+ .....5.8 7.01 Cooperation in labor-employer relations .................120 ....– .....3.8
1.12 Business costs of crime and violence....................126 ....– .....2.3 7.02 Flexibility of wage determination............................121 ....– .....3.4
1.13 Organized crime ......................................................112 ...+ .....3.9 7.03 Non-wage labor costs* .............................................11 ...+ .....2.4
1.14 Reliability of police services ...................................104 ...+ .....3.2 7.04 Rigidity of employment* ..........................................70 ....– ...41.0
1.15 Ethical behavior of firms...........................................39 ...+ .....4.7 7.05 Hiring and firing practices.......................................129 ....– .....2.3
1.16 Strength of auditing and reporting standards.............6 ...+ .....6.2 7.06 Firing costs* .............................................................38 ...+ ...24.0
1.17 Efficacy of corporate boards.......................................4 ...+ .....5.7 7.07 Pay and productivity .................................................92 ....– .....3.8
7.09 Brain drain ................................................................69 ....– .....3.2
2nd pillar: Infrastructure 7.10 Female participation in labor force*........................102 ...+ .....0.6
2.03 Quality of railroad infrastructure ...............................41 ...+ .....3.4 8.01 Financial market sophistication.................................15 ...+ .....6.0
2.04 Quality of port infrastructure ....................................48 ...+ .....4.4 8.02 Financing through local equity market .......................4 ...+ .....6.0
2.07 Quality of electricity supply ......................................83 ....– .....4.0 8.04 Venture capital availability.........................................41 ...+ .....3.7
2.08 Telephone lines*.......................................................87 ....– ...10.0 8.05 Restriction on capital flows .....................................111 ....– .....3.6
8.06 Strength of investor protection* ................................9 ...+ .....8.0
78 3.01 Government surplus/deficit* ....................................48 ...+ .....0.3 8.08 Regulation of securities exchanges............................5 ...+ .....6.0
3.02 National savings rate*.............................................103 ....– ...14.1 8.09 Legal rights index* ...................................................47 ...+ .....5.0
3.03 Inflation*...................................................................70 ....– .....4.7
4.02 Malaria incidence*....................................................86 ....– ...29.9 9.05 Mobile telephone subscribers* ................................47 ...+ ...71.6
4.03 Business impact of tuberculosis.............................124 ....– .....3.7 9.06 Internet users* .........................................................73 ....– ...10.8
4.04 Tuberculosis incidence*..........................................125 ....– .599.9 9.07 Personal computers*................................................62 ....– .....8.4
4.05 Business impact of HIV/AIDS.................................129 ....– .....2.3 9.08 Broadband Internet subscribers*..............................74 ....– .....0.3
4.06 HIV prevalence*......................................................126 ....– ...18.8
4.08 Life expectancy*.....................................................120 ....– ...48.0 10.01 Domestic market size* .............................................19 ....– .....4.9
4.09 Quality of primary education ....................................99 ....– .....2.7 10.02 Foreign market size* ................................................28 ....– .....4.9
4.11 Education expenditure* ...........................................32 ...+ .....5.3 11th pillar: Business sophistication
5.01 Secondary enrollment* ............................................51 ...+ ...90.5 11.03 State of cluster development ...................................45 ...+ .....3.9
5.04 Quality of math and science education ..................128 ....– .....2.4 11.06 Control of international distribution ..........................32 ...+ .....4.5
5.06 Internet access in schools........................................86 ....– .....3.0 11.08 Extent of marketing ..................................................17 ...+ .....5.6
6.03 Effectiveness of anti-monopoly policy ......................18 ...+ .....5.4 12.04 University-industry research collaboration................24 ...+ .....4.2
6.05 Total tax rate* ..........................................................39 ....– ...38.3 12.06 Availability of scientists and engineers...................104 ....– .....3.6
6.06 No. of procedures required to start a business* .....52 ....– .....9.0 12.07 Utility patents* .........................................................39 ...+ .....2.3
* Hard data
Turkey
Key indicators
GDP (US$ billions), 2007...................................................................................482.0
GINI index, 2003...................................................................................................43.6
(out of 131) (1–7) 7
5
4 stability
sophistication

80
7th pillar: Labor market efficiency ..................................126 ........3.6 Labor market efficiency
Turkey Mexico

Turkey Mexico
Tax regulations ........................................................13.6% .........9.3%
Tax rates ...................................................................12.3% .........6.3%
Corruption...................................................................5.1% .......12.5%
Inflation .......................................................................4.9% .........0.6%
Foreign currency regulations..................................4.3% .........0.2% Turkey
Poor work ethic in national labour force ..............1.1% .........1.9% Mexico
Crime and theft ..........................................................0.6% .......10.6%
0 5 10 15 20 25
Turkey
12,000
Turkey 10,000
Commonwealth of 8,000
Independent States
and Mongolia 6,000
4,000
2,000
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

25,000
20,000
15,000
10,000
5,000
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

81

90
80
All commodities
70
materials
40
Miscellaneus 30
equipment 0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

European Union: 2005................................................................................41.6
52.5%
United
States: 5.9%
Russian Federation: 3.8%
Iraq: 3.0%
Others: Romania: 2.7%
32.1%
Source: WTO, 2007
Turkey
1st pillar: Institutions 6.07 Time required to start a business*...........................11 ...+ .....9.0
1.01 Property rights ..........................................................58 ...+ .....4.8 6.08 Agricultural policy costs ..........................................108 ....– .....3.3
1.02 Intellectual property protection ................................69 ....– .....3.4 6.09 Prevalence of trade barriers......................................42 ...+ .....5.0
1.07 Wastefulness of government spending ...................70 ....– .....3.3 6.14 Degree of customer orientation ...............................37 ...+ .....5.0
1.08 Burden of government regulation ............................80 ...+ .....2.9 6.15 Buyer sophistication .................................................60 ....– .....3.9
1.11 Business costs of terrorism ...................................100 ....– .....4.8 7.01 Cooperation in labor-employer relations ...................93 ....– .....4.3
1.12 Business costs of crime and violence......................58 ...+ .....4.9 7.02 Flexibility of wage determination .............................88 ....– .....4.8
1.13 Organized crime........................................................76 ...+ .....4.9 7.03 Non-wage labor costs*.............................................86 ...+ ...21.6
1.15 Ethical behavior of firms...........................................40 ...+ .....4.6 7.05 Hiring and firing practices.........................................88 ....– .....3.5
1.16 Strength of auditing and reporting standards...........62 ...+ .....4.8 7.06 Firing costs*............................................................112 ....– ...94.7
1.17 Efficacy of corporate boards.....................................91 ....– .....4.3 7.07 Pay and productivity .................................................83 ....– .....4.0
1.18 Protection of minority shareholders’ interests .........56 ...+ .....4.6 7.08 Reliance on professional management ....................68 ....– .....4.5
7.09 Brain drain ................................................................58 ....– .....3.5
2nd pillar: Infrastructure 7.10 Female participation in labor force*........................125 ....– .....0.4
2.04 Quality of port infrastructure ....................................83 ...+ .....3.4 8.02 Financing through local equity market .....................29 ...+ .....5.5
2.05 Quality of air transport infrastructure .......................49 ...+ .....5.1 8.03 Ease of access to loans ............................................74 ...+ .....3.1
2.08 Telephone lines*.......................................................51 ...+ ...25.9 8.05 Restriction on capital flows ......................................14 ...+ .....6.2
82 3.01 Government surplus/deficit* ....................................41 ...+ .....0.7 8.08 Regulation of securities exchanges..........................39 ...+ .....5.2
3.03 Inflation*..................................................................111 ....– .....9.6
4.01 Business impact of malaria ....................................n /a 9.04 FDI and technology transfer .....................................73 ....– .....4.8
4.02 Malaria incidence*....................................................82 ....– ...12.9 9.05 Mobile telephone subscribers* ................................55 ...+ ...59.6
4.03 Business impact of tuberculosis ..............................41 ....– .....6.3 9.06 Internet users* .........................................................62 ....– ...15.3
4.04 Tuberculosis incidence* ...........................................48 ....– ...28.8 9.07 Personal computers* ................................................76 ....– .....5.1
4.06 HIV prevalence* .........................................................1 ...+ ..<0.1
4.08 Life expectancy* ......................................................71 ....– ...71.0 10.01 Domestic market size* .............................................16 ....– .....5.0
5.01 Secondary enrollment* ............................................81 ....– ...79.2 11.03 State of cluster development ...................................46 ...+ .....3.8
5.02 Tertiary enrollment*..................................................62 ...+ ...29.0 11.04 Nature of competitive advantage .............................83 ....– .....3.2
5.07 Local availability of research and training services...43 ...+ .....4.3 11.09 Willingness to delegate authority.............................70 ....– .....3.8
6.04 Extent and effect of taxation ..................................103 ....– .....2.8 12.05 Gov't procurement of advanced tech products........73 ...+ .....3.6
6.06 No. of procedures required to start a business* .....37....=.....8.0 12.07 Utility patents* .........................................................67 ....– .....0.2
* Hard data
Contents This paper is published by the World Economic Forum within the framework of the Global
Competitiveness Network.
Professor Klaus Schwab

Part I: Assessing the Foundations of Mexico’s Competitiveness: Findings from the Global Executive Chairman
Competitiveness Index 2007-2008 3
by Irene Mia and Emilio Lozoya Austin (World Economic Forum) The Global Competitiveness Network:
Fiona Paua, Senior Director, Head of Strategic Insight Teams
Part II: Country Profiles 29 Jennifer Blanke, Director, Senior Economist

Ciara Browne, Senior Community Manager
List of Countries 31 Agustina Ciocia, Coordinator
Margareta Drzeniek Hanouz, Associate Director, Senior Economist
How to Read the Country Profiles 33
Thierry Geiger, Economist
Mexico Competitiveness Profile 37 Irene Mia, Associate Director, Senior Economist
Comparator Countries Competitiveness Profiles 43 Pearl Samandari, Research Assistant
Eva Trujillo Herrera, Research Assistant
The Regional Agenda Team, Latin America:
Julio Estrada, Associate Director, Global Leadership Fellow, Latin America

Antonio Human, Community Relations Manager, Latin America
Emilio Lozoya Austin, Head of Latin America, Global Leadership Fellow
Paula Verholen, Senior Community Relations Manager, Latin America
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Assessing the Foundations of Mexico's Competitiveness:

Findings from the Global Competitiveness Index 2007-2008
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(www.weforum.org)
Irene Mia, World Economic Forum

Emilio Lozoya Austin, World Economic Forum

Assessing The Foundations of Mexico's Competitiveness

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Assessing the Foundations of Mexico's Competitiveness:

Findings from the Global Competitiveness Index 2007-2008

Irene Mia, World Economic Forum

Professor Klaus Schwab

Fiona Paua, Senior Director, Head of Strategic Insight Teams

Part II: Country Profiles 29 Jennifer Blanke, Director, Senior Economist

The Regional Agenda Team, Latin America:

Julio Estrada, Associate Director, Global Leadership Fellow, Latin America

World Economic Forum

©2008 World Economic Forum

Innovation and sophistication factors Key for

Table 1 List of economies by stage of development

Stage 1 Transition from 1 to 2 Stage 2 Transition from 2 to 3 Stage 3

Table 2 Weights of the three subindexes per stage of development

GCI 2007-2008 ranks (out of 131 economies)

Labour market efficiency 92

Source: World Economic Forum 2007

Figure 3 Mexico’s evolution in the GCI ranking, 2005-07

Basic requirements Efficiency enhancers Innovation factors

Table 4 Basic requirements: Mexico and selected countries/regions

Macroeconomic Health and Basic

Table 6 Innovation and sophistication factors: Mexico and selected countries/regions

Business sophistication Innovation Innovation and sophistication factors

Rank Country Score

Source: Mia et al. 2007

Figure 5 Mexico’s performance at glance in the IPAI

Mexico Chile Average (excl. Chile)

Government and society 1 Political risk

Financial markets enablers

Source: Mia et al. 2007

Source: OECD Development Center 2007 (based on Latinobarometro)

Direct Taxes** Other Taxes*** Social security 43

Source: OECD Development Center 2007

Source: OECD Development Center 2007 (based Goñi et al. 2006)

500 Slovak Republic

5,000 10,000 15,000 20,000 25,000 30,000

Source: OECD Development Center 2007

Table 7 Banking infrastructure (per million inhabitants)

Branches ATMs Terminals with services

Source: OECD Development Center 2007

OECD average (4.81), as well as Hungary (41st), Chile Market size

Source: UNCTAD 2007

Figure 13 Evolution of main exports, 1994-2006

Source: United Nations 2008

Annex 1: Structure of the Global Competitiveness Index 2007-2008

This section includes a four-page country profile for

Financial market Goods market

6th pillar: Goods market efficiency...................................97 ........3.8 sophistication efficiency

9th pillar: Technological readiness...................................55 ........3.3

11th pillar: Business sophistication..................................39 ........4.5

The most problematic factors for doing business

Key indicators Policy instability.........................................................5.0% .........7.6%

Population Fund (UNFPA)’s State of World Population

Database. Current account and unemployment data

For Mexico, a bar chart on the right-hand side compares

For other countries, a spider chart on the right-hand

capita, 1996-2007 Brazil

This chart shows the evolution of GDP based on purchasing 6,000

power parity (PPP) per capita for the last 10 years.The 0

Source: World Economic Outlook Database, October 2007

data were obtained from the World Economic Outlook

5 FDI Flows (US$), 1995-2006 15,000

This chart tracks the evolution of foreign direct investment 1995

Direct Taxes Other Taxes* Social security 43