Profit share and capital accumulation in Mexican manufacturing

Carlos A. Ibarra

International Review of Applied Economics, 2024, vol. 38, issue 5, 457-481

Abstract: Mexican manufacturing shows a long-run divergence between a rising profit share of income and a flat rate of capital accumulation. Following the Cambridge equation, the paper studies the determinants of capital accumulation and finds the divergence to be partly explained by a reduction in the output/capital ratio, which opened a gap between a rising profit share and falling profit rate. But besides this classical, Marxian mechanism, two additional factors were at play: first, nonlinear profitability effects, which reveal that, at the high profitability rates observed in Mexico, profitability was not a binding constraint on accumulation; and second, foreign profitability effects, which show that a rise in US profits rates affected negatively accumulation in Mexico. The results come from estimated equations for the capital accumulation rate and investment share of profits in an annual panel of 17 manufacturing industries during the period 1992–2019.

Date: 2024
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DOI: 10.1080/02692171.2023.2291564

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