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The Drivers and Consequences of Resource Misallocation: Exploiting Variation across Mexican Industries and States

Author

Listed:
  • Florian Misch
  • Christian Saborowski

Abstract

This paper explores the role of specific structural distortions in explaining Mexico’s weak productivity growth through the misallocation of resources across firms. The paper makes two contributions. First, we show that there is a close correlation between the level of resource misallocation and per capita income across Mexican states. Second, we exploit the large variation in resource misallocation within industries and across states, together with unusually rich data at the establishment, local, and industry levels, to shed light on its determinants. We identify several well-defined and observable distortions that have a statistically and economically meaningful effect on productivity via resource misallocation. In particular, we find that misallocation rises with the prevalence of labor informality, crime, corruption, and market concentration and with weaker access to financial and telecommunications services.

Suggested Citation

  • Florian Misch & Christian Saborowski, 2020. "The Drivers and Consequences of Resource Misallocation: Exploiting Variation across Mexican Industries and States," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Spring 20), pages 61-96, December.
    • Handle: RePEc:col:000425:019758
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    Cited by:

    1. Van Reenen, John & Bloom, Nicholas & Iacovone, Leonardo & Pereira-Lopez, Mariana, 2022. "Management and Misallocation in Mexico," CEPR Discussion Papers 16979, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    Resource misallocation; productivity; distortion;
    All these keywords.

    JEL classification:

    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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