proved market potential. Interestingly, there is no significant effect of an increase in the market potential in the North, while the effect is important in the South (which is less developed).<sup>25</sup> This result thus sheds light on the potential benefit to enhance economic opportunities through investment in transport infrastructure in lagging regions. It is also in line with the evidence that Southern Mexico has a greater potential to generate positive spatial spillovers (Deichmann et al., 2004, Baylis et al., 2012 and Alvarez et al., 2017).

# **. 5 3 The effect of market access and market potential on specialization**

Table 9 presents the causal effect of market potential and market access on locality specialization. The first four columns present the impact on specialization in terms of output, whereas the last four columns present the impact on specialization in terms of employment.

A 10 percent increase in market access causes a 7 percent increase in output specialization and a 3.4 percent increase in employment specialization. In contrast, we find no significant impact of market potential on specialization, neither in terms of employment nor in terms of output. More urbanized locations were not differently affected than less urbanized locations.

Table 9: The effect of market access and market potential on specialization

||Kr|ugman Specializa|tion index:|Output|Krug|man Specializati|on index: E|mployment|
|---|---|---|---|---|---|---|---|---|
||Mark|et Potential|Mar|ket Access|Mark|et Potential|Mar|ket Access|
||ols|iv (Doughnuts)|ols|iv (Doughnuts)|ols|iv (Doughnuts)|ols|iv (Doughnuts)|
|Market Potential or Market Access|2.913***|0.154|0.455***|0.704***|1.884***|0.984|0.321**|0.339**|
||(0.494)|(1.863)|(0.176)|(0.231)|(0.436)|(0.815)|(0.128)|(0.160)|
|mpormax Metropolitan dummy|-2.245***|0.464|-0.127|-0.286|-1.433***|-0.590|-0.0410|-0.0833|
||(0.507)|(1.772)|(0.146)|(0.187)|(0.441)|(0.820)|(0.0942)|(0.0995)|
|mpormax Education|0.0694|0.172**|-0.259***|-0.291***|0.0752*|0.122**|-0.269***|-0.214**|
||(0.0448)|(0.0774)|(0.0768)|(0.0919)|(0.0432)|(0.0528)|(0.0798)|(0.105)|
|mpormax Capital city|0.00864|0.00877|0.0458*|0.0837***|-0.00180|-0.00183|0.0955***|0.102**|
||(0.00871)|(0.00988)|(0.0239)|(0.0304)|(0.0138)|(0.0135)|(0.0170)|(0.0439)|
|mpormax Oil dummy|-0.423|-0.577|1.009|0.950|-0.243|-0.233|1.785|1.756|
||(0.494)|(0.470)|(2.109)|(1.945)|(0.458)|(0.538)|(1.968)|(2.478)|
|Above median education|1.313***|1.264***|1.214***|1.286***|0.492|0.414|0.231|0.508|
||(0.353)|(0.431)|(0.390)|(0.418)|(0.403)|(0.424)|(0.423)|(0.390)|
|Above median population|29.22***|-4.382|1.503|0.994|18.32***|7.713|0.780*|0.476|
||(6.422)|(22.33)|(1.017)|(0.966)|(5.581)|(10.35)|(0.472)|(0.447)|
|Constant|-42.77***||-4.412***||-29.06***||-4.017***||
||(6.165)||(0.985)||(5.454)||(0.504)||
|Observations|4599|3628|4303|3628|4491|4149|4203|3556|
|Adj. R-squared|0.0649|0.0498|0.0234|0.0233|0.0385|0.0381|0.0200|0.0106|

_Note_ : * denotes significance at the 10% level, ** denotes significance at the 5% level, and *** denotes significance at the 1% level. The estimates are from the instrument regression with the doughnut iv calculated by excluding all localities within a 25km circle. Results are robust to others iv strategies (road count and efficient road units).

> 25Despite improvements, the per capita income in the northern states is two or three times higher than in the southern states, and the disparities in terms of other social and infrastructure indicators are even more dramatic.

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