Analysing public debt in the Mexican states: Spatial convergence, regional drivers and policy recommendations

Abstract

Considering that public debt is a priority for policymakers in Mexico, the aim of this paper is to examine the convergence or divergence in debt per capita and main drivers of debt in the 32 Mexican states in the period 2006–2021. The results support significant spatial correlation of debt/cap across states. Cross‐section and spatial dynamic regressions are used to analyse absolute and conditional beta‐convergence in debt per capita, and the divergence assumption is documented. The panel data models based on the method‐of‐moments quantile models and pooled mean group estimators indicate that poverty is the main determinant of debt, whereas foreign direct investment is insufficient to support the reduction in debt in the long run. These results provide evidence for a set of policy recommendations to ensure a sustainable debt path in Mexico.