Key sectors in Mexico's economic development: a perspective from input-output linkages with sector-specific distortions

Julio Leal Ordóñez

No 571, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: Which sectors are key for development? I calibrate a multi-sector model with input-output linkages, sector-specific distortions, and heterogeneity in sectorial productivity for the case of Mexico. When these features are taken into account, it turns out that the least efficient sectors are not necessarily those that create more harm on aggregate productivity. I show --through counterfactuals-- that closing the productivity gaps in a subset of highly influential and distorted sectors leads to substantial gains in aggregate productivity, and that the role of Services in Mexico's development problem is larger than previously thought. In addition, several margins in the economy are affected by sector-specific distortions, including labor misallocation. I quantify and decompose the aggregate effect of the removal of these distortions into its main economic channels. The focus on Mexico allows for a more direct link of distortions with policy recommendations.

Date: 2018
New Economics Papers: this item is included in nep-dge
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed018:571

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