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Spatial Dependence in Regional Business Cycles: Evidence from Mexican States

Author

Listed:
  • Keisuke Kondo

    (Research Institute of Economy, Trade and Industry)

Abstract

This paper investigates how a region-specific shock propagates outward toward neighboring regions when regional business cycles are spatially dependent. For this purpose, we model business cycles by introducing a spatial autoregressive process into a Markov switching model. The advantage of this model is that it enabled us to numerically simulate spatial spillover effects. Therefore, we were able to demonstrate how the economic crisis in 2008–2009 spread across Mexican states. We found that business cycles across these states were spatially dependent and that a regime switch from expansion to recession caused conditions in the neighboring economies to deteriorate.

Suggested Citation

  • Keisuke Kondo, 2015. "Spatial Dependence in Regional Business Cycles: Evidence from Mexican States," Discussion Paper Series DP2015-27, Research Institute for Economics & Business Administration, Kobe University.
  • Handle: RePEc:kob:dpaper:dp2015-27
    as

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    File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2015-27.pdf
    File Function: First version, 2015
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    References listed on IDEAS

    as
    1. Hideaki Hirata & M. Ayhan Kose & Chris Otrok, "undated". "Regionalization vs. Globalization," Working Paper 164456, Harvard University OpenScholar.
    2. Holloway, Garth & Shankar, Bhavani & Rahman, Sanzidur, 2002. "Bayesian spatial probit estimation: a primer and an application to HYV rice adoption," Agricultural Economics, Blackwell, vol. 27(3), pages 383-402, November.
    3. Sebastian Sosa, 2008. "External Shocks and Business Cycle Fluctuations in Mexico; How Important are U.S. Factors?," IMF Working Papers 08/100, International Monetary Fund.
    4. Albert, James H & Chib, Siddhartha, 1993. "Bayes Inference via Gibbs Sampling of Autoregressive Time Series Subject to Markov Mean and Variance Shifts," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(1), pages 1-15, January.
    5. M. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2003. "International Business Cycles: World, Region, and Country-Specific Factors," American Economic Review, American Economic Association, vol. 93(4), pages 1216-1239, September.
    6. Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1, June.
    7. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Spatial dependence; Spatial spillover effects; Regional business cycles; Markov switching model; Markov chain monte carlo;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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