Spatial diffusion of economic growth and externalities in Mexico

Economic growth and externalities are rooted in spatial dynamics, however, their spread over space is not unlimited. In this document it is estimated the strength spatial externalities from capital on output and the spatial spillover of the economic growth for Mexican municipalities at different distances. The estimation is carried out implementing a Spatial Durbin Model with distance-based spatial weight matrices in a panel data structure from 1988 to 2013. The results show evidence of weak spatial externalities from capital on output at short distances, say 20 or 60 km. Additionally, it is found that the diffusion of economic growth is directly related to distance, moreover, there is evidence in favor about the convergence hypotheses, finding out that distance between stationary states is insufficient to explain differences among municipalities' growth rates, but geographical distance matters as well.