A nonparametric approach to the decomposition of labor productivity in regional manufacturing

This study decomposes both the labor productivity gap and the labor productivity growth into the contributions of technical efficiency, capital deepening and technological change for Mexican manufacturing at the regional level. In order to do so, we apply a methodology that combines two literatures: the nonparametric construction of production frontiers and the general decomposition approach developed by Shorrocks (2012) which is based on the Shapley value. The results indicate that regional differences in labor productivity are mainly attributed to technical efficiency, and, to a lesser extent, to regional differences in capital deepening. Moreover, labor productivity growth was not homogeneous across regions over the period 1998-2008. In both the north and the south, the increase in labor productivity was mainly driven by technical efficiency, while technological change was the most influential factor on labor productivity growth in the central regions.