Subnational Analysis of Economic Fitness and Income Dynamic: The Case of Mexican States

• Main Authors: Gonzalo Castañeda, Juan Romero-Padilla
• Format: Article
• Language: English
• Published: MDPI AG 2018-11-01
• Series: Entropy
• Subjects: economic fitness; complexity; regional development; growth forecasting; Mexican economy
• Online Access: https://www.mdpi.com/1099-4300/20/11/841

In recent years, analytical tools of network theory have provided strong empirical support to the well-known hypothesis that regions develop through the local learning of capabilities (tacit productive knowledge). In this paper, we compare two indexes of competitiveness (or accumulated capabilities) for a subnational database of 32 Mexican states in the period 2004&#8315;2014. We find that Endogenous Fitness (i.e., region fitness and product complexity are derived jointly using only a Mexican exports database) has a better performance than Exogenous Fitness (i.e., product complexity comes from a world exports database and fitness is the sum of the complexity scores for the region&#8217;s competitive products). The performance criterion is established with the indicator&#8217;s capacity to meet a requirement of growth predictability: the existence of at least one <i>laminar (ordered) regime</i> in the fitness&#8315;income plane. In the Mexican data, Endogenous Fitness is a reliable predictor of per capita GDP in two distinct areas of the plane: one of continuous progress and opportunities, and another of stagnation and deteriorating fitness. The predictive capacity of this indicator becomes clear only when the metrics&#8217; calculations are filtered by removing raw petroleum or oil-dependent states, while such capacity is robust to the inclusion of tourism&#8212;another important industry of the Mexican economy.