Contribution of Exports to Growth, Mexico 1970-1990: Capital Accumulation or Labour Productivity Growth?

Recent contributions to growth theory suggest two main venues through which foreign trade contributes to economic growth; enhanced capital accumulation, and increased productivity growth. These mechanisms have different implications for development policy and trade liberalization in Mexico. This paper tests these competing hypotheses using sectoral data from the Mexican manufacturing industry between 1970 and 1990. Despite large variations in export shares across sectors and over the period, overall the study finds little supportive evidence that (i) exports lead to higher sectoral investment rates, and (ii) experts lead to faster labour productivity growth. Estimates suggest that, to the extent that monetary policy can inhibit the overvaluation of the real exchange rate, it may be also conducive to both faster capital accumulation and export growth. [ABSTRACT FROM AUTHOR]