Growth in a Dual Economy

48 Pages Posted: 10 Jan 2007 Last revised: 15 Aug 2010

See all articles by Magnus Blomstrom

Magnus Blomstrom

Stockholm School of Economics - Department of Economics; National Bureau of Economic Research (NBER), at New York; Centre for Economic Policy Research (CEPR)

Edward N. Wolff

New York University (NYU) - Department of Economics; National Bureau of Economic Research (NBER); Bard College - Levy Economics Institute

Date Written: August 1993

Abstract

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.

Suggested Citation

Blomstrom, Magnus and Wolff, Edward N., Growth in a Dual Economy (August 1993). NBER Working Paper No. w4433. Available at SSRN: https://ssrn.com/abstract=480241

Magnus Blomstrom (Contact Author)

Stockholm School of Economics - Department of Economics ( email )

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Edward N. Wolff

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