Regional Differences of Production and Efficiency of Mexican Manufacturing: An Application of Nested and Stochastic Frontier Panel Models

This study examines the regional divide for Mexican manufacturing. Mexico's north-south disparity is widely noted, but rarely analyzed empirically and at detailed regional level. We use a panel of municipality-level data to estimate regional production functions. An important contribution is the application of nested panel and stochastic frontier models to capture latent regional characteristics and the computation of performance indicators for all municipalities. There is evidence for considerable differences in economic structure and productivity of the south to the central manufacturing belt and the north. Variation of efficiency is however pronounced, indicating that strong municipalities prevail in highly inefficient states.