The role of Spatial dynamics in labor productivity: A regional multifactor partitioning analysis of mexico’s manufacturing sector: 1993-2018

Over the past 30 years, Mexico’s economic liberalization has reshaped regional economic activities, resulting in a closely interconnected regional economy with strong global value chains (GVCs), particularly in the manufacturing sector. This transformation has significantly impacted regional and industrial productivity dynamics. Not all regions or industries have experienced the advantages of this integration equally. While some regions, particularly those in the north, have experienced substantial productivity gains due to their proximity to the U.S. market and deep integration into North American GVCs, others have lagged. Our paper focuses on the spatial distribution of economic activity across both space and time, also referred to as spatial dynamics. The economic activity we study is regional labor productivity within the Mexican manufacturing sector from 1993 to 2018, and our interest is in how it differs across various manufacturing segments characterized by distinct innovation processes, thereby influencing regional trajectories. To account for the diversity in innovation and technology within manufacturing, industries are classified into taxonomy groups: specialized suppliers, scale intensive, science-based, and supplier dominated. To do this, we use two complementary methods. One is modified Multifactor Partitioning (MFP), which is used in shift-share analysis and provides a role for distribution and structure effects in the measurement regional growth patterns. The other is formal spatial econometric modeling to identify potential spatial dynamics ignored in classical labor productivity decompositions. Our findings reveal notable disparities in manufacturing labor productivity growth across regions and taxonomy groups. Specialized suppliers’ industries exhibit significant regional and interaction effects in the northern and central northern regions, whereas scale-intensive industries demonstrate comparatively weaker effects in the southern and central regions. These insights are valuable for policymakers seeking to address labor productivity disparities and promote more balanced economic development.