Empirical Evidence Of Verdoorns Law In Mexican Manufacturing

Abstract

In this document we use the model called Verdoorns Law that has been widely favored with the empirical evidence as being able to explain the persistence of divergences in growth rates, which establishes a positive relation between product growth and productivity. The goal is to estimate the Verdoorns coefficients for the 32 states in Mexico for the period of 1985-2004 through the use of the Ordinary Least Square method (OLS) and the pool data technique for an added analysis at subsector levels of the manufacturing industry. The purpose of this paper is to explain regional divergences in Mexico by identifying those factors that influence economic growth and that would allow the proposal of regional policies that can help reduce the observed differences, and by contributing to the development of the country as a whole. Consistent results were found with Verdoorns Law by detecting increasing returns in the manufacturing industry, both by regions and by subsectors. The states that show lower Verdoons coefficients (higher returns to scale) are definitely the ones that have grown the most.