In this paper we prove the thypotheis about the existence of positive effects from profitability to business growth, or vice versa. The manufacturing sectors of Mexico grow because they register higher profitability, while conversely, growth does not guarantee better profitability. This finding may be indicative of how Mexican businessmen behave and how business uncertainty is handled. If entrepreneurs make a profit, then they are also willing to increase investments, but they are prudent in investing, that is, they prefer not to risk if a reduction in profits is observed. Data on employment (total employed personnel), net sales, fixed assets, fixed capital, and total costs are required. Business growth is estimated from net sales and employment, while profitability comes from the net revenue to net sales ratio. The economic censuses between 1993 and 2018 provide the basic inputs for this purpose, some of them are employed personnel, net sales, fixed assets, gross fixed capital formation, costs, total income, among others, for the industrial manufacturing disaggregate by sector (at the 4-and 6-digit level). All monetary values, originally in thousands of millions of Mexican Pesos, were deflated using the producer price index that is available by subsector at the 4-digit level and were used as growth rates (employment and net sales), in logarithms (fixed assets and fixed capital) or as indices (profitability and costs). Deflation of the investment variables is possible using the gross fixed investment index.
Steps to reproduce
This exercise seeks to reproduce the firm conduct related to profitability-business growth nexus, however, raw data at the firm-level is complicated. Therefore, this paper proposes to use the subsectoral level due to business growth hypothesis also applies for the sub sectoral disaggregation-level, from the which it is possible to infer on the firm behavior. Other purpose of this research is to see this profits-growth nexus along time, so paper takes into account a wide period with five-years data obtained from the economic censuses. However, time data have to be deflacted to make them comparable, moreover, due to methodological changes that occurred in the industry classifications throughout the period, mainly for fairly disaggregated classes and branches of economic activity, some adjustments were necessary. At the end, we treat with a set of data integrated by 80 sectors. Monetary values were deflated using the producer price index that is available by subsector at the 4-digit level, while deflation of the investment variables is possible using the gross fixed investment index. Once defined the database, it was used in Eviews and Gauss softwares to estimate the econometric methods such as VECM, piecewise, dynamic panel data, among others. Both software leave similar results, so at the end we only make to depend this study from the Eviews.