The European Journal of Comparative Economics
ISSN: 1824-2979
Year: 2016, December. Volume: 13 - Issue: 2

Could Mexico become the new 'China'? Policy drivers of competitiveness and productivity

Sean M. Dougherty ; Octavio R. Escobar

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Start page: 169 - End page: 198

Productivity, microdata, sub-national policy analysis, informality, allocative efficiency
Over the last decade, Mexico's unit labour costs decreased relative to other emerging markets', especially compared to China's. This decrease boosted Mexico's trade competitiveness, particularly in the manufacturing sector. However, Mexico's increasing competitiveness masks one of the country's fundamental concerns, which is the absence of productivity improvements. The aim of this paper is two-fold: first, we examine the evolution of total factor productivity in Mexico's manufacturing sector, as compared to China's. Firm-level data is employed to analyse the distribution and characteristics of productivity across Mexico's regions. Second, using regional data for the period 2005-2012, we study the policy impediments behind sluggish productivity improvements, particularly to determine how labour informality may have contributed. The study takes advantage of Mexico's heterogeneity across regions in terms of productivity, market regulation, financial constraints and firm size to identify economic policies that can help to boost productivity in the future.

Jel code: E26
Jel code: O17 O43, O54, O17
Jel code: O43
Jel code: O54
Jel code: L25
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