Abstract

This paper examines the business cycle co-movement in Mexican states over the period 2000-2014 by estimating an extended gravitational panel data model. Two different de-trending filters are used to check the robustness of our results. The estimates suggest that the co-movement increases as the size of the states' economies does so as well as with the productive structure similarities and the relative level of development; however, the co-movement decreases at a diminishing rate with geographical distance. There is also evidence of time-dependent effects. In addition, the existence of moderate co-movements among the states' cycles suggests that common economic policies may not be suitable for all states, which implies there is a need for specific countercyclical policies to mitigate idiosyncratic shocks.