Objective:

the aim of this paper is to assess whether economic performace at municipal level scatters across space and time within Mexican states.

Methodology:

we follow a two-step econometric strategy. The first step is to instrument for both GDP and GDP growth rates at municipal level by following Henderson et al. (2012)’s methodology. The second step is to regress a dynamic spatial econometric model by following Elhorst (2010)’s model specification and estimation strategy.

Limitations:

we consider 1) Distortions in luminosity data 2) Our results are based upon municipalities within state. We do not test spatial implications among municipalities that belong to different states.

Originality:

we partially follow Millán López and González Olivares (2024) research line notwithstanding, we go further to analyze spatial interactions at municipal level.

Conclusions:

our main findings are that economic performance of municipalities significantly depend upon their neighbor’s contemporaneous and lagged economic perfomance. Furthermore, this paper provides a specific estimate to approximate both GDP and GDP growth rates where there is lack of statistical sources; for example, metropolitan or coastal areas.

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