Prioritizing public investment in agriculture for post-COVID-19 recovery: A sectoral ranking for Mexico

Abstract

Mexico's economy contracted unprecedentedly in 2020. Agriculture remains important for the economy and job creation, but it lacks strong productive dynamism and exhibits high informality. We show that investing in agriculture’s infrastructure can contribute to economic recovery and welfare post-COVID-19. On the basis of a dynamic computable general equilibrium model, we allocate to agriculture sectors public investment in productive infrastructure equivalent to 0.25% of GDP during three immediate years and analyze effects up to 2030. We see improvement in GDP, agri-food output and private consumption with rural poverty reduction. Based on the impact on these variables, a ranking suggests that new investments should prioritize the sugar cane sector. Highly ranked are also cereals, mainly maize, and other export-oriented crops such as flowers and coffee. Not only should investments prioritize these sectors, but the government should also finance them with foreign borrowing to speed up recovery and avert the short-term macroeconomic trade-offs of domestic financing.