Population and economic growth in Mexico: regime dynamics and causality

Abstract

This paper examines the joint dynamics of population and economic performance using panel data from the 32 Mexican states throughout the period 1940-2020. The analysis considers the population growth rate and per capita GDP level as state variables. In the first stage, it applies regime dynamics and hierarchical cluster analysis to segment the sample into regimes of Mexican states with similar trajectories in terms of population and per capita GDP. In the second stage, after identifying clusters that exhibit internal homogeneity and are distinct from one another, the study conducts Granger, VAR causality, and cointegration tests, both with and without accounting for structural changes. The results confirmed that there is a causal relationship between population and economic growth, with the nature of this relationship varying between positive and negative effects, depending on the cluster and stage identified by a single structural change. However, no further evidence of causality emerges beyond the breakpoint.