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Strength in Diversity: A Spatial Dynamic Panel Analysis of Mexican Regional Industrial Convergence, 1960–2003

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Abstract

Using a spatial dynamic panel, the long-run industrial sector convergence rate across Mexico’s states is found to be 2%. The model is a system-General Method of Moments with correction for spatial autocorrelation and an explicit human capital input. The significant inequality between the richest and poorest states is caused by differences in factor accumulation. Physical capital accumulation dominates in richer states while the human capital accumulation is in poorer states. Regional inequality is predicted to grow unless there is government intervention to address the bipolar regional divide. More investment in human capital in non-industrialized states to draw strength from Mexico’s diversity is recommended.

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Notes

  1. Although Chiapas is a non-oil state there are two reasons to exclude it as a source of potential bias. First, mining and natural gas production are quite important. Second, some economic data were overestimated in the censuses.

  2. The literature on rates of convergence around 2% is overwhelming. For a comprehensive listing see De la Fuente (1997). For the Mexican case there are not antecedents allowing a reliable comparison because an input/output growth model had not been tested until now. However, some studies on absolute convergence establish a rate of convergence between 0.9% and 3.3% depending on the period and method used (Esquivel, 1999). Using a more recent period, some have even found divergence (Sánchez-Reaza and Rodríguez-Pose, 2002; Chiquiar, 2005 among others).

  3. When serial correlation is not a serious problem the m1 test rejects the null hypothesis of AR(1) in first differences, while the m2 test accepts it when there is no AR(2) in first differences (no AR in levels) (see Arellano and Bond, 1998).

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Authors and Affiliations

  1. Universidad Autónoma de Coahuila, Unidad Camporredondo, Edificio ‘E’, Planta Baja, Saltillo, CP 25280, México

    Vicente German-Soto

  2. Department of Finance & Economics, College of Business, Georgia Southern University, P.O. Box 8152, Statesboro, GA, USA

    Gregory Brock

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  1. Vicente German-Soto
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  2. Gregory Brock
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German-Soto, V., Brock, G. Strength in Diversity: A Spatial Dynamic Panel Analysis of Mexican Regional Industrial Convergence, 1960–2003. Comp Econ Stud 57, 183–202 (2015). https://doi.org/10.1057/ces.2014.42

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