Unfinished structural change and sectoral heterogeneity: the case of Mexico

Mexico, as other Latin American countries, undertook far-reaching economic reforms in the 1980s and 1990s in a wide array of areas. As a result, the Mexican economy experienced outstanding export growth, successful insertion into global markets and a shift towards medium and high-technology industries. Yet productivity growth was insufficient, leading to low and volatile economic growth. This paper examines the dynamics of productivity growth and in particular inter- and intra-industry dynamics, making use of a shift-share analysis and the rich detail available in a novel industry data set. The paper shows that Mexico has experienced an unfinished structural change, in which spells of intra sectoral productivity expansion have been hampered by severe losses during crises, resulting in insufficient productivity growth over the period 1990-2012 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 hindered by the prevalence of flows from industrial sectors with high labor productivity growth towards those with lower or contracting productivity growth