Trade Integration and Intra-national Business Cycle Synchronization: Evidence from Mexico’s States from 1980 to 2019

Abstract

This study documents the adjustment in the business cycles of Mexico’s states that resulted from trade liberalization. It also analyzes the relevance of the various elements that previous studies have proposed as the determining factors of the synchronization of these cycles. Our results reveal that these determinants are relevant throughout the sample period (1980-2019), but their relative importance changes over time as does their synchronization. This may be explained as follows: trade liberalization caused a regional and sectoral reallocation of resources, which in turn led to some states becoming increasingly interlinked based on their economic structures, whereas the remaining states became less synchronized with the former states. This case should be of interest to other developing countries that are dependent on the world’s capital and trade flows and whose regions may respond heterogeneously if they have diverse economic structures as those of Mexico.