GROWTH IN A DUAL ECONOMY

Growth and structural transformation of the manufacturing sector in de veloping countries are sometimes considered to be the result of the ex pansion of the ''modern'' (large-scale) sector relative to the ''tradi tional'' (small-scale) sector. Examining the sources of labor producti vity growth in Mexican manufacturing, however, does not provide suppor t for such a conclusion. Although we find that labor productivity leve ls vary almost in direct relation to establishment size, labor product ivity growth shows no systematic variation by size class. In fact, sma ll establishments have had the same rate of labor productivity growth as larger ones, partly because of the ''exit-effect'' (i.e. the exitin g of low-productivity, small plants). Moreover, most of the variation in labor productivity across plant class sizes is found to be due to d ifferences in capital intensity. The variation in total factor product ivity (TFP) levels across size classes tends to be small. (C) 1997 Els evier Science Ltd.