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An unfinished business: Economic liberalization and structural change in Mexico

Padilla-Pérez, Ramón and Villarreal, Francisco G. (2014): An unfinished business: Economic liberalization and structural change in Mexico.

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Mexico, as other Latin American countries, undertook far-reaching economic reforms in the 1980s and 1990s in a wide array of areas: trade and industrial policy, foreign investment and capital account, privatization of public enterprises and deregulation of economic activities, among others. As a result of the new economic model, the Mexican economy experienced outstanding export growth, successful insertion into international dynamic markets and shift towards medium and high-technology industries. Yet productivity growth has been insufficient, leading to low and volatile economic growth. This paper examines the dynamics of productivity growth and in particular analyzes whether inter- and intra-industry dynamics can account for sluggish productivity growth. It makes use of a shift-share analysis, taking advantage of a recently published industry-level database developed by the Mexican National Statistics Office as part of the LA-KLEMS project. The paper shows that Mexico has experienced an unfinished structural change, where productivity growth within sectors has been insufficient to close the gap with its main trading partner, the United States. Moreover, despite a significant reallocation of hours worked across industries, its aggregate impact has been hampered by the fact that flows have been from industrial sectors with high labor productivity growth towards sectors with lower, or contracting, productivity growth.

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