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Public infrastructure and private sector profitability and productivity in Mexico

  • Shah, Anwar

This paper specifies a microeconomic model to estimate the impact of investment in public infrastructure on private industrial profitability. Empirical results based on time series data for 34 industries characterize the Mexican industrial structure as having involuntary unemployment, deficient product demand, declining productivity growth, increasing returns to scale, and short run excess capital capacity. Aggregate technological change over the period studied has been capital using and labor saving.Both labor and capital are underused in the short run. This disequilibrium has high efficiency costs that may be undermining Mexico's international competitiveness. Therefore, new capital investment in the public sector is not recommended at this time and should be undertaken only to rectify any identified constraints imposed by the inadequacy of infrastructure in the private employment of private factors.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 100.

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Date of creation: 30 Sep 1988
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Handle: RePEc:wbk:wbrwps:100
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  1. Levy, Santiago, 1989. "Export subsidies and the balance of trade," Journal of Development Economics, Elsevier, vol. 31(1), pages 99-121, July.
  2. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Balassa, Bela, 1988. "The interaction of factor and product market distortions in developing countries," World Development, Elsevier, vol. 16(4), pages 449-463, April.
  4. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
  5. Lawrence H. Summers, 1988. "Relative Wages, Efficiency Wages, and Keynesian Unemployment," NBER Working Papers 2590, National Bureau of Economic Research, Inc.
  6. Boadway, Robin W, 1973. "Similarities and Differences between Public Goods and Public Factors," Public Finance = Finances publiques, , vol. 28(3-4), pages 245-58.
  7. Holly, Alberto, 1982. "A Remark on Hausman's Specification Test," Econometrica, Econometric Society, vol. 50(3), pages 749-59, May.
  8. Poterba, James M & Rotemberg, Julio J & Summers, Lawrence H, 1986. "A Tax-Based Test for Nominal Rigidities," American Economic Review, American Economic Association, vol. 76(4), pages 659-75, September.
  9. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
  10. Mark Schankerman & M. Ishaq Nadiri, 1984. "Restriced Cost Functions and the Rate of Return to Quasi-Fixed Factors, with an Application to R&D and Capital in the Bell System," NBER Working Papers 1259, National Bureau of Economic Research, Inc.
  11. Feltenstein, Andrew & Morris, Stephen, 1988. "Fiscal stabilization and exchange rate instability," Policy Research Working Paper Series 74, The World Bank.
  12. Lindbeck, Assar & Snower, Dennis J, 1988. "Long-term Unemployment and Macroeconomic Policy," American Economic Review, American Economic Association, vol. 78(2), pages 38-43, May.
  13. Weitzman, Martin L, 1982. "Increasing Returns and the Foundations of Unemployment Theory," Economic Journal, Royal Economic Society, vol. 92(368), pages 787-804, December.
  14. Morrison, Catherine J, 1988. "Quasi-Fixed Inputs in U.S. and Japanese Manufacturing: A Generalized Leontief Restricted Cost Function Approach," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 275-87, May.
  15. Ernst R. Berndt & Melvyn A. Fuss, 1982. "Productivity Measurement Using Capital Asset Valuation to Adjust for Variations in Utilization," NBER Working Papers 0895, National Bureau of Economic Research, Inc.
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