Productivity, human capital and population: its effects on economic growth in Mexico (1961-2019)

Abstract

This work estimates an annual production function for Mexico similar to that proposed by the Penn World Table (PWT) 10.0 (Feenstra, Inklar and Timmer, 2015). To do this, it uses data from the same database indicated. Since total factor productivity (TFP) is unobservable, it is assumed that it follows a first-order autoregressive process.

The described estimation is carried out by the generalized method of moments (MGM). One of the main results of the estimation is that there are joint diminishing returns to capital and labor, so that the PFT calculated in this exercise has a smoother behavior than that arising from PWT 10.0. This is because the estimation in this article does not impose the assumptions of perfect competition and constant returns at the factor scale, which are imposed by PWT 10.0 (Feenstra et al., 2015).

The results of the article are used in an economic growth model. With them it is possible to obtain the long-term effects that the growth of TFP, human capital and employment have in Mexico on the growth of GDP per hour employed and the growth of product per capita.