Technical and structural change, and the fall in the manufacturing output-capital ratio in Mexico, 1990-2015

The article studies the fall in the manufacturing output-capital (OC) ratio in Mexico in the post-trade liberalisation period 1990-2015. From a classical perspective, a pattern of falling OC ratio, rising labour productivity and greater capital intensity can be interpreted as a case of Marx-biased technical change. A within-between-industry decomposition shows, however, that in Mexico the fall in the average OC ratio reflects not only within-industry technical change but also structural change, in the form of a change in the composition of the capital stock towards industries with low or declining OC ratios. Econometric estimations, moreover, show that within-industry technical change was not related to the initial level or change in domestic labour costs, as in the dominant interpretation of the sources of Marx-biased technical change, but was driven instead by Mexico's industrial integration with the USA. Within-industry technical change-and convergence to US OC ratios-dominated in an early phase, but were replaced by structural change and divergence in a later phase, following the China shock of the early 2000s. Irrespective of the source of change in the average OC ratio, though, both within-industry technical change in the early phase and structural change in the late one tended to reduce the average profit rate in the Mexican manufacturing sector.