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May 1, 2026

Resource misallocation

How do management practices in Mexico affect firm performance?

Tyler Smith

Source: pressmaster

In well-functioning economies, the best-managed businesses attract plenty of capital and the most talented workers, enabling them to grow. In many developing economies, however, resources remain tied up in unproductive firms, and capable entrepreneurs stay stuck at small scale, a phenomenon economists call misallocation.

In a paper in the American Economic Journal: Macroeconomics, Nicholas Bloom, Leonardo Iacovone, Mariana Pereira-López, and John Van Reenen examine management practices in Mexico and investigate the factors that drive misallocation. 

The authors’ data came from the National Survey on Productivity and Competitiveness of Micro-, Small-, and Medium-size Enterprises in Mexico (ENAPROCE), a management survey of roughly 24,000 Mexican firms. For each of the firms covered in the data, the authors assigned a management score between zero and one based on the 16 questions covered in the management section of the survey.

The results show that Mexican management quality is both lower on average and less correlated with firm size than in the United States. 

Figure 3 from the authors' paper illustrates the main findings by plotting the average number of employees on a log scale against the firm-level management score. The lines in the chart represent linear regressions.

Figure 3 from Bloom et al. (2026)

The steepest line corresponds to US manufacturing firms, where the slope is 3.36. The middle line represents Mexican manufacturing firms, with a slope of 2.75. The flattest line depicts Mexican services, where the slope falls to just 1.62. 

The steeper slope for the United States indicates that an improvement in management is associated with a larger employment gain compared to Mexican manufacturing and services.

The researchers interpret these size–management relationships as evidence that misallocation intensifies as sectors become more sheltered from competition, reflecting differences in market exposure between the United States and Mexico and between the manufacturing and service sectors within Mexico. Mexican services are heavily regulated and face less competitive pressure than manufacturing. Moreover, the authors find that proximity to the US border steepens the slope for manufacturing, while larger local market size steepens it for services.

The findings suggest that good management practices, along with competitive and regulatory reform, may raise productivity and economic growth.