Using Spatial Econometric Techniques to Estimate Spatial Multipliers: An Assessment of Regional Economic Policy in Yucatan, Mexico

Although the traditional economic base model remains a useful tool for regional analysis, in a multi-region context it fails to account for feedback effects. In addition, since the model is typically applied to individual regions, formal assessment of variation in the magnitude of regional multipliers is rarely considered. These shortcomings may be addressed by using spatial econometric techniques to model the economic base relationship stochastically. In this study, I incorporate spatial effects into the traditional economic base model and find empirical evidence that economic activity in Yucatan, Mexico generates indirect impacts not only locally, but among other locations that are linked economically. These spatial multipliers may be employed to estimate the potential spillover effects of economic activity and analyze the implications of regional economic policy.