Working Paper: CEPR ID: DP861
Authors: Magnus Blomstrom; Edward N. Wolff
Abstract: Growth and structural transformation of the manufacturing sector in developing countries are generally considered to be the result of the expansion of the `modern' (large-scale) sector relative to the `traditional' (small-scale) sector. Examining the sources of labour productivity growth in Mexican manufacturing, however, does not provide support for this conclusion. Although we find that labour productivity levels vary almost in direct relation to establishment size, labour productivity growth shows no systematic variation by size class. In fact, small establishments have had the same rate of labour productivity growth as larger ones, partly because of the `excise-effect' (the exiting of low-productivity, small plants). Moreover, most of the variation in labour productivity across plant class sizes is found to be due to differences in capital intensity. The variation in TFP levels across size classes tends to be small. Thus, our results remove some justification of the policy measures that favour large firms in developing countries.
Keywords: economic growth; dual economy; mexico; productivity; firm size
JEL Codes: O1; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| diffusion of technology from the U.S. (O33) | labor productivity growth in large plants (O49) |
| establishment size (L25) | labor productivity growth (O49) |
| exit of low-productivity small firms (J63) | overall productivity growth (O49) |
| capital intensity (E22) | labor productivity levels (J89) |
| size class (C55) | labor productivity growth (O49) |
| employment distribution shifts (J68) | overall labor productivity (J24) |