The Role of Metropolitan Cooperation and Administrative Capacity in Subnational Debt Dynamics: Evidence From Municipal Mexico

Research on subnational capital markets in developing nations has tended to focus on designing regulatory frameworks that compensate for structural economic, fiscal, and political factors. However, research on public investment in the United States shows that functional factors, like administrative capacity and metropolitan cooperation, are also important. Using a panel dataset of Mexican municipal debt (2005–2012), the study examines whether metropolitan cooperation and administrative capacity affect subnational debt decisions in this developing nation. Cross‐sectional time‐series analysis of different types of municipal debt (public development bank loans, private commercial bank debt, bond emissions, and trust instruments) reveals that municipalities in metropolitan areas avoid costlier credits but that they do not cooperate to access cheaper loans. The research reveals that administrative capacity plays little to no role in municipal debt decisions.