Economic structure,productivity, and infrastructure quality in Southern Mexico

There are large and sustained differences in the economic performance of sub-national regions in most countries. In this paper, we examine economic structure and productivity in Southern Mexico and compare these to the rest of the country. We employ firm level data from Mexican manufacturing to test the relative importance of firm level characteristics such as human capital and technology adoption compared to external characteristics such as infrastructure quality and regulatory environment in explaining productivity differentials. We find that the economic structure of the South is considerably different from the rest of the country, with the economic landscape being dominated by micro enterprises and a relative specialization in low productivity activities. This coupled with low skill levels and fewer skill upgrading opportunities reduces the performance of Southern firms. Productivity differentials between Southern and other firms, however, only exist for micro enterprises. The econometric analysis shows that while employee training and technology adoption enhance productivity, access to markets through improvements in transport infrastructure linking urban areas also have important productivity effects.We would like to thank Jose Luis Guasch for comments and suggestions and Julio Gonzalez for assistance in getting access to the firm level ENESTYC data. We appreciate the cooperation and collaboration of the Mexican National Institute of Statistics, Geography and Informatics (INEGI) throughout the process. This paper is part of a larger program to examine the contribution of economic geography and investment climate to economic efficiency. The findings reported in this paper are those of the authors alone, and should not be attributed to the World Bank, its executive directors, or the countries they represent.Received: September 2002 / Accepted: May 2003