Economic liberalization and external shocks. The hypothesis of convergence revisited for the Mexican states, 1994–2015

We study the convergence hypothesis for Mexican states during the period 1994–2015 considering the impact not only of NAFTA but also of other external shocks, such as China’s entry into the World Trade Organization (WTO) in 2001 and the global financial crisis of 2008. Using econometric panel data models with no fixed effects to avoid small sample bias, the main results indicate: (a) presence of absolute divergence, consistent with a sigma process divergence, particularly in the period after the outbreak of the global crisis of 2008; and (b) a process of weakening conditional convergence across the sub‐periods analyzed.