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Jorge Alvarez and Cian Ruane
We assess the aggregate productivity impact of distortions arising from labor regulations in Mexico and how they interact with informality. Using employment surveys and a firm-level economic census, we document a number of novel features about informal firms in Mexico. We then construct and estimate a model of heterogeneous firms and endogenous informality to study the micro and macro impacts from various policy reforms. Some reforms may have large impacts on informal employment but small impacts on aggregate productivity.
Jorge Alvarez and Cian Ruane

using a structural model to interpret important facts about informality in Mexico which we construct from a rich set of employment surveys and firm-level micro-datasets. In the first part of the paper we document the prevalence of informal firms in Mexico, the high share of informal employment that exists within formal firms, and the wage, size, and productivity structure of the formal and informal sectors. The data reveals the complex nature of informality in Mexico, where large heterogeneity in productivity, wages, and sizes exists among both among formal and

Pelin Berkmen, Ms. Kimberly Beaton, Mr. Dmitry Gershenson, Mr. Javier Arze del Granado, Kotaro Ishi, Miss Marie S Kim, Emanuel Kopp, and Mrs. Marina V Rousset
In Latin America and the Caribbean (LAC), financial technology has been growing rapidly and is on the agenda of many policy makers. Fintech provides opportunities to deepen financial development, competition, innovation, and inclusion in the region but also creates new and only partially understood risks to consumers and the financial system. This paper documents the evolution of fintech in LAC. In particular, the paper focuses on financial development, fintech landscape for domestic and cross border payments and alternative financing, cybersecurity, financial integrity and stability risks, regulatory responses, and considerations for central bank digital currencies.
Jorge Alvarez and Cian Ruane

how they interact with informality. Using employment surveys and a firm-level economic census, we document a number of novel features about informal firms in Mexico. We then construct and estimate a model of heterogeneous firms and endogenous informality to study the micro and macro impacts from various policy reforms. Some reforms may have large impacts on informal employment but small impacts on aggregate productivity. JEL Classification Numbers: D22, E26, H26, J46, O14, O17 Keywords: Informality, Misallocation, Productivity, Growth, Mexico. Author’s E

International Monetary Fund. Western Hemisphere Dept.

as they age is an important concern. 4. The aim of this paper is to understand why firms in Mexico do not invest more and thus remain relatively small and unproductive . We make use of several waves of the Mexican Economic Census and other subnational data sources to calculate firm growth over firms’ life-cycles. We then decompose life cycle dynamics to understand regularities and attempt to identify distortions that explain the lack of firm growth. B. Methodology and Data 5. Estimating firm life cycles is challenging . A firm’s life cycle measures the

International Monetary Fund

of total liabilities; average across firms) Better Use of Natural Currency Hedging (Foreign currency liabilities in percent of exports plus foreign currency assets; median across firms) 12. A recent IMF study (Kamil and Sutton, 2008) shows that over the last decade, listed firms in Mexico and Brazil have cut their vulnerability to exchange rate risk by reducing currency mismatches in their balance sheets . Firms have relied less on foreign currency financing and those with such financing have been more likely to have natural hedges such as

International Monetary Fund. Western Hemisphere Dept.

become more productive, probably in part because they have a stronger incentive to invest in their employees and have an easier time accessing financial services. Finally, the dummy identifying small firms is not significant. One would perhaps expect smaller firms to be less productive in the full sample of firms in Mexico. The fact that we do not find evidence of such a relationship is likely due to the fact that we control for both labor informality and cross-sectional variation in the regression.

International Monetary Fund
This Selected Issues paper on Mexico presents econometric investigation of the cyclical determinants of remittances to Mexico. The aggregate U.S. business cycle is not necessarily relevant for remittances. Remittances to Mexico do show a significant relationship with employment conditions in certain regions of the United States. Employment conditions in the U.S. construction sector seem to be especially important as well as remittances for certain regions of Mexico with high rates of emigration, and for many low-income households where they may constitute a sizable share of total income.
International Monetary Fund

( Maloney (2005) ). 3. Indeed, Maloney (2005) provides compelling arguments to question the traditional view of a dualistic labor market, and in support of the voluntary entrepreneur view of the informal sector . First, in interviews with informal sector employees in Mexico, more than 60 percent responded that they left their previous job and entered the informal sector voluntarily because of greater independence or higher pay ( Maloney (2005) ). Second, using data on micro enterprise firms in Mexico, Fajnzylber, Maloney, and Montes (2003) find that labor mobility