Regional economic convergence in Mexico: an analysis by industry.

Introduction

ECONOMIC CONVERGENCE ACROSS GEOGRAPHICAL SUBDIVISIONS HAS BEEN treated both in the context of open and closed economy analysis. Open economy analysis has focused on intra-national convergence, i.e., the growth experience of individual states or subdivisions of specific countries (Amos 1989, 1991; Barro and Sala-i-Martin 1991; Browne 1989; Coughlin and Mandelbaum 1988; Garnick 1990; Mallick 1993; Maxwell and Hite 1992; Maxwell and Peter 1988; Ram 1991). Closed economy analyses have estimated the rate at which relatively poor countries have converged towards more affluent countries (Baumol 1986; De Long 1988).

As shown by Smith (1975) and McCombie (1988), factor mobility is expected to diminish regional differences. Yet, empirical studies have shown that long-term rates of intra-national convergence have been weaker than would have been anticipated on the basis of economic theory (Barro and Martin 1991). The relative weakness of economic convergence has been attributed to two sets of (not mutually exclusive) causes.

The first set of causes pertains to weakness of factor mobility. While labor mobility is encouraged by regional economic differentials, it may be impeded by offsetting factors such as residential housing market illiquidities or by quality-of-life (Brunell and Galster 1992), infra-structural (Nordhaus and Baily 1991), and tax (Blanchard and Katz 1992) considerations; these are not sufficiently represented in the theoretical models and their predictions.

A second set of causes that impede regional convergence--or indeed may lead to regional divergence--is based on the influence of external demand shocks (Blanchard 1991).

The divergence of state incomes in the 1980s has been attributed to the differentially favorable impact on the Northeast and California of growth in the computer and defense industries (Amos 1989; Coughlin and Mandelbaum 1988, 1989). This type of growing regional inequality is claimed to be symptomatic of the concentration of economic activity into regional growth poles, generated in turn by major technological innovations, such as information technologies (Amos 1989, 1991).

Such regional divergence is consistent with the Kuznets (Ram 1991) inverted U-hypothesis, which predicts intermittent periods of technological growth-led inequality ("polarization" segment) followed by declining inequality as technology gets more uniformly dispersed on a regional basis ("dispersion" segment).

Convergence in Less Developed Countries

Both sets of impediments to smooth regional convergence warrant examining the experience of less developed countries (LDCs) with respect to intra-national regional inequality.

First, as late-comers to the technological innovations of the late twentieth century, and with growing global interdependence, LDCs are more subject to frequent technological shocks. The technological shocks imply regionally concentrated investment spurts in the traditional growth poles, perhaps furthering regional inequality.

Second, the relative under-development of transport and communication infrastructure in LDCs could hinder factor mobility. Further, in an export economy, mobility incentives may be distorted by the need for export industries to locate in border states.

We chose Mexico as our preferred LDC for at least two reasons. Due to its geographical location and recent trade policies, Mexico has been becoming more quickly integrated into an interdependent global economy(1) than many other LDCs. With growing global investments, it seemed interesting to explore whether Mexico's economy has been subject to regionally concentrated technology-led growth. Second, the relative …