This paper uses information on the productive structure of each of Mexico's states to calculate a measure of economic complexity using the Method of Reflections proposed by Hausmann and Hidalgo (2009). The results suggest that the country's states differ markedly in terms of the activities they specialize in, and therefore also in terms of their economic complexity. There is also a clear regional pattern which shows that states in the north are more complex, those in the central region have an intermediate level of complexity, and those in the south have the lowest levels of complexity. As previous international studies have shown, complexity is an important factor in explaining the economic disparities observed in the country, given that its measure is positively related to both the level of wealth and the growth rate of the states. Therefore, we can assert that the dispersion of productive knowledge-measured according to the specialization of the states or the location of the various economic activities performed there-goes some way toward explaining their different patterns of growth.

Identifying factors that explain the regional distribution patterns of Foreign Direct Investment (FDI) flows into an economy is no simple task, since they depend on a range of factors. In the case of Mexico, previous studies have documented the role of diverse characteristics in attracting FDI to the country's states. This study shows that economic complexity -a variable that indicates the productive capabilities or productive knowledge that exist in a given economy's economic structure -can explain the distribution of FDI among Mexican states. Similar to previous studies, we document the spillover effects of economic complexity, i.e., we show how states surrounded by states with a high level of economic complexity tend to receive more FDI. Moreover, we document how FDI flows to manufacturing industries are positively correlated with their level of economic complexity. This result, to the best of our knowledge, has not been documented before in this literature.

We document how the localization of production in Mexico's range of manufacturing subsectors and the specialization of its states have evolved as a result of the process of trade opening. We use the global estimate methodology to calculate the extent to which all industries are localized or all regions specialized. The results show that: (i) since 1993, there has been an increase in global localization and specialization in manufacturing production; (ii) transportation equipment, chemicals, and food products account for the greatest share of the overall increase in localization during this period; and (iii) those states closest to the US contributed most to the overall increase in specialization.JEL classification: F15, R11, R12

The opening up of the Mexican economy completely transformed the growth dynamics of the per capita Gross Domestic Product (GDP) of the country's various states, with a clear tendency towards growth being concentrated in specific regions. In this study, we quantify the indirect or spillover effect of economic complexity on growth based on the following two facts: i) economic complexity is an important factor in explaining GDP growth rates, and ii) there is a clear regional pattern in the states' economic complexity, i.e., the economic complexity variable shows a positive spatial autocorrelation. Our results provide two insights: first, that the estimated positive spillover effect of complexity on growth is not negligible, particularly for states in the north of the country, whose own economic complexity is as important as that of their neighbors. In contrast, the spillover effect in southern states is negative. Being located next to states with low levels of economic complexity has a significant negative externality that almost overrides the positive effect of a state's own level of complexity. Our findings lead us to conclude that spillover effects may *The views and conclusions contained in this article are those of the authors and do not necessarily reflect the point of view of Banco de México. The comments and remarks by three anonymous referees are greatly acknowledged. They have significantly enhanced this research work.