The Growing Divide Within Developing Economies

Look around the developing world and you will see a bewildering fissure opening up between economies' leading and lagging sectors. Worse, in many developing countries, the share of employment in these low-productivity sectors is expanding.

PRINCETON – When researchers at the McKinsey Global Institute (MGI) recently dug into the details of Mexico’s lagging economic performance, they made a remarkable discovery: an unexpectedly large gap in productivity growth between large and small firms. From 1999 to 2009, labor productivity had risen by a respectable 5.8% per year in large firms with 500 or more employees. In small firms with ten or fewer employees, by contrast, labor productivity growth had declined at an annual rate of 6.5%.

Moreover, the share of employment in these small firms, already at a high level, had increased from 39% to 42% over this period. In view of the huge gulf separating what the authors called the “two Mexicos,” it is no wonder that the economy performed so poorly overall. As rapidly as the large, modern firms improved, through investments in technology and skills, the economy was dragged down by its unproductive small firms.

This may seem like an anomaly, but it is in fact an increasingly common occurrence. Look around the developing world, and you will see a bewildering fissure opening up between economies’ leading and lagging sectors.

To continue reading, please log in or enter your email address.

To access our archive, please log in or register now and read two articles from our archive every month for free. For unlimited access to our archive, as well as to the unrivaled analysis of PS On Point, subscribe now.

required

By proceeding, you agree to our Terms of Service and Privacy Policy, which describes the personal data we collect and how we use it.

Log in

http://prosyn.org/5bhJUw2;

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.