Until the 1980s, the Mexican economy was closed and strongly directed and controlled by the central government. However, starting with the second half of this decade and continuing into the 1990s, a marked change in industrial policy sought to create conditions that would open the economy and foster competition and economic efficiency. This process was undertaken by implementing a first generation of reforms, which included policies designed to attain macroeconomic stability, trade openness, and a modernization of the regulatory framework. A second generation of reforms included the application of horizontal instruments, like standardization and metrology; the passing of new laws, such as the property rights protection law and a law for foreign investments; and the creation of regulatory agencies. Nevertheless, unlike most countries undergoing this process, the opening of the Mexican economy did not include the services sector, where distortions persisted. This article underscores competition problems that persist in certain regulated sectors, such as transport, telecommunications, energy, and financial services. The article proposes specific measures to successfully tackle such challenges, including: (1) providing autonomy to sectoral regulators to avoid regulatory capture; (2) improving coordination between horizontal and vertical regulators; and (3) promoting accountability of these regulators, particularly with Congress and the judiciary. Finally, the author considers that laws can be perfected provided there is an adequate institutional framework. The reverse is not true: well-written laws are useless when the institutions underlying them are flawed.

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