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Growth in a Dual Economy

  • Magnus Blomstrom
  • Edward N. Wolff

Growth and structural transformation of the manufacturing sector in developing countries are generally considered to be the result of the expansion of the "modem" (large-scale) sector relative to the "traditional" (small-scale) sector. Examining the sources of labor productivity growth in Mexican manufacturing, however, does not provide support for such a conclusion. Although we find that labor productivity levels vary almost in direct relation to establishment size, labor productivity growth shows no systematic variation by size class. In fact, small establishments have had the same rate of labor productivity growth as larger ones, partly because of the "excise-effect" (i.e. the exiting of low-productivity, small plants). Moreover, most of the variation in labor 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 favor large firms in developing countries.

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File URL: http://www.nber.org/papers/w4433.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4433.

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Date of creation: Aug 1993
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Publication status: published as World Development, Vol. 25, no. 10 (October 1997): 1627-1637.
Handle: RePEc:nbr:nberwo:4433
Note: EFG ITI
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  1. Kokko, Ari, 1994. "Technology, market characteristics, and spillovers," Journal of Development Economics, Elsevier, vol. 43(2), pages 279-293, April.
  2. Blomstrom, Magnus & Wolff, E.N., 1989. "Multinational Corporations And Productivity Convergence In Mexico," Working Papers 89-28, C.V. Starr Center for Applied Economics, New York University.
  3. Patricio Meller, 1976. "Efficiency Frontiers for Industrial Establishments of Different Sizes," NBER Chapters, in: Explorations in Economic Research, Volume 3, number 3, pages 77-105 National Bureau of Economic Research, Inc.
  4. Magnus Blomstrom & Edward N. Wolff, 1993. "Growth in a Dual Economy," NBER Working Papers 4433, National Bureau of Economic Research, Inc.
  5. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-63, September.
  6. David Dollar & Edward N. Wolff, 1993. "Competitiveness, Convergence, and International Specialization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262041359, June.
  7. Ranis, Gustav, 1988. "Analytics of development: Dualism," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 1, chapter 4, pages 73-92 Elsevier.
  8. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
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