Manufacturing Industry Profitability and Business Growth in Mexico's Northern Border Municipalities

This study examines the nonlinear relationship between business growth and profitability in the manufacturing sector of Mexico's Northern Border municipalities during 1998–2023. Business activity serves as one of the engines of economic development, yet theoretical perspectives diverge on whether firms should prioritize growth or profitability – a decision with significant implications for regional development. Employing dynamic panel data methods with quadratic and piecewise specifications, we find that growth precedes and stimulates profitability in this internationally integrated region. Employment-based growth demonstrates more stable effects than sales-based measures, attributable to greater labor market rigidity and long-term strategic orientation. These findings suggest that international market integration creates a virtuous cycle in which expansion generates sustained profitability, offering insights into Mexico's prolonged economic stagnation and highlighting the Northern Border region's distinctive competitive advantages. The evidence supports differentiated policy approaches tailored to firm size and developmental stage.