Ontario and Mexico in North America's Automotive Production Network: A Subnational Test of Stratified Regional Integration

Abstract

Ontario accounts for the overwhelming majority of Canada's motor vehicle production, yet its exposure to Mexican manufacturing shocks has generally been treated as indirect, transmitted only through Canada's relationship with the United States. This paper tests that assumption using a purpose-built panel of 10 Canadian provinces and 12 US states, with Mexico's manufacturing cluster growth as a common shock variable (2006Q1–2024Q4). Granger causality tests, the primary evidence, show that Mexico's nearshoring shock predicts Ontario directly (χ² = 15.21, p < 0.001) while the US automotive corridor does not (χ² = 0.83, p = 0.661). A placebo test confirms automotive specificity: motor vehicles respond on impact, aerospace does not. Markov-switching regression shows Mexico and the US achieve 97.4% regime concordance while Ontario enters recession independently in 16 of 76 quarters, including a rising episode from 2023Q4 without a continental counterpart. Local projections corroborate this response, though differential estimates do not survive wild cluster bootstraps and are treated as directional. These results are consistent with a triangular rather than bilateral network, Mexico as the upstream source, with Ontario and the US Midwest as parallel downstream receivers, with implications for regional-science models of stratified production geographies and for the USMCA review initiated in July 2026.