Clusters and Employment Growth in Mexico: Insights from a Panel Data Model

This paper examines the impact of industrial clusters on employment growth in Mexican municipalities from 1986 to 2019 using a spatial panel data model. Contrary to cluster theory’s expectation of positive employment effects, our results show that greater industrial specialization, measured by the Krugman Specialization Index, reduces employment overall, with the strongest declines in manufacturing, services, and mining. Commerce is less affected. By contrast, higher education, access to electricity, and foreign direct investment significantly promote employment growth, with education exerting the largest positive effect. Spatial spillovers further reveal that employment dynamics extend beyond municipal boundaries. These findings suggest that while clustering may enhance productivity and innovation, excessive specialization undermines job creation. Policymakers should therefore emphasize diversification strategies and adapt cluster initiatives to local economic conditions when designing employment-focused regional development policies. JEL codes: O12; R11; O47