DP16979 Management and Misallocation in Mexico

Author(s): Nicholas Bloom, Leonardo Iacovone, Mariana Pereira-López, John Van Reenen
Publication Date: January 2022
Keyword(s): Management, Manufacturing, Mexico, Misallocation, Performance, Services
JEL(s): D24, E22, F14, L25, O33
Programme Areas: Labour Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16979

We argue that greater misallocation is a key driver of the worse management practices in Mexico compared to the US. These management practices are strongly associated with higher productivity, growth, trade, and innovation. One indicator of greater misallocation in Mexico is the weaker size-management relationship compared to the US, particularly in the highly distorted Mexican service sector. Second, the size-management relationship is weaker in smaller markets, measured by distance to the US for manufacturing firms and population density for service firms. Third, municipalities with weaker institutions, measured by contract enforcement, crime, and corruption, have a weaker size-management relation. These results are consistent with frictions lowering aggregate management quality and productivity.