Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
NAFTA and Mexican Industrial Development
Eric Verhoogen
Columbia University
June 6, 2014
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Mexico’s Disappointing Growth Performance
I Despite concerted efforts at market-oriented reforms since the
mid-1980s, Mexico’s growth has underperformed that of other
middle-income countries.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Hanson: Why Isn’t Mexico Rich?
989
vs. Latin-American Countries
Panel A. Latin America
Log per capita GDP (1980 = 0)
1
Mexico
Brazil
Venezuela
Argentina
Chile
0.5
0
−0.5
1980
1985
1990
1995
2000
2005
Year
Source:
Hanson
(2010).Asia
Panel
B. Southeast
= 0)
1.5
Mexico
Malaysia
Thailand
NAFTA and Mexican Industrial Development
Indonesia
Philippines
Eric Verhoogen
−0.5
Introduction
Existing Approaches
1980
1985
Sectoral Shifts and Innovation
1990
Conclusion
1995
2000
2005
1995
2000
2005
Year
vs. Asian Countries
Panel B. Southeast Asia
Log per capita GDP (1980 = 0)
1.5
Mexico
Malaysia
Thailand
Indonesia
Philippines
1
0.5
0
−0.5
1980
1985
1990
Year
Source: Hanson (2010).
Figure 1: Economic Growth in Comparison Countries
(continued)
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Journal of Economic Literature, Vol. XLVIII (December 2010)
990
vs. Eastern Europe
Panel C. Eastern and Central Europe
Log per capita GDP (1980 = 0)
0.8
Mexico
Hungary
Turkey
0.6
Bulgaria
Romania
0.4
0.2
0
−0.2
1980
1985
1990
1995
2000
2005
Year
Source: Hanson (2010). Figure 1: Economic Growth in Comparison Countries (continued)
are insufficient to explain the Mexican case.
Because some countries in Latin America have
done well
in the last
decade, Mexico’s perforNAFTA and Mexican
Industrial
Development
relative to Asia and Europe, which during the
second half of the twentieth century did converge toward U.S. income levels, was due pri-Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Mexico’s Disappointing Growth Performance (cont.)
I Big question: What role has NAFTA (or integration more
broadly) played in this growth experience?
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Mexico’s Disappointing Growth Performance (cont.)
I Big question: What role has NAFTA (or integration more
broadly) played in this growth experience?
I There are a number of plausible alternative factors that have
contributed to the disappointing performance (Hanson, 2010;
Kehoe and Ruhl, 2010):
I
I
I
I
I
Monopolies and inefficient regulation (Arias et al., 2010).
Underdeveloped credit markets (Haber, 2004).
Informality and evasion (Levy, 2008).
Corruption and, more recently, violence.
...
All of these likely played a role.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Mexico’s Disappointing Growth Performance (cont.)
I Big question: What role has NAFTA (or integration more
broadly) played in this growth experience?
I There are a number of plausible alternative factors that have
contributed to the disappointing performance (Hanson, 2010;
Kehoe and Ruhl, 2010):
I
I
I
I
I
Monopolies and inefficient regulation (Arias et al., 2010).
Underdeveloped credit markets (Haber, 2004).
Informality and evasion (Levy, 2008).
Corruption and, more recently, violence.
...
All of these likely played a role.
I But let’s focus for now on trade/integration.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Plan of Talk
I Introduction
I Some Observations about Existing Approaches
I Sectoral Shifts and Innovation
I Conclusion
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
The Empirical Challenge
I As many others have noted, evaluating NAFTA is difficult
because other things changed at the same time:
I Trade liberalization of mid-1980s.
I Events in 1990s may have been delayed reaction.
I Peso crisis.
I As Krueger (2000) and others have noted, devaluation was
much larger (50% nominal devaluation) than tariff changes
(10% reductions in Mexico, 3-5% in US).
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
The Empirical Challenge
I As many others have noted, evaluating NAFTA is difficult
because other things changed at the same time:
I Trade liberalization of mid-1980s.
I Events in 1990s may have been delayed reaction.
I Peso crisis.
I As Krueger (2000) and others have noted, devaluation was
much larger (50% nominal devaluation) than tariff changes
(10% reductions in Mexico, 3-5% in US).
I Two broad categories of approaches to evaluating the effects
of NAFTA:
I Applied general equilibrium modeling.
I Reduced-form, typically difference-in-differences.
I will argue that there is something missing from each.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Applied General Equilibrium Modeling
I Ably reviewed by Kehoe (2005), and yesterday’s keynote.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Applied General Equilibrium Modeling
I Ably reviewed by Kehoe (2005), and yesterday’s keynote.
I Advantage: Can make theoretically well-grounded statements
about general-equilibrium effects, welfare.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Applied General Equilibrium Modeling
I Ably reviewed by Kehoe (2005), and yesterday’s keynote.
I Advantage: Can make theoretically well-grounded statements
about general-equilibrium effects, welfare.
I Issue: Valid only if the model is right. (A big “if.”)
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Applied General Equilibrium Modeling
I Ably reviewed by Kehoe (2005), and yesterday’s keynote.
I Advantage: Can make theoretically well-grounded statements
about general-equilibrium effects, welfare.
I Issue: Valid only if the model is right. (A big “if.”)
I My reading of Tim’s reading:
I Applied GE models did not perform particularly well in
predicting the effects of NAFTA.
I One issue is new goods margin.
I Aggregate changes seem to be driven largely by TFP changes.
But models for the most part do not endogenize TFP.
“It may be that we applied GE modelers eventually decide
that the biggest effect of liberalization of trade and capital
flows is on productivity — through changing the distribution
of firms and encouraging technology adoption — rather than
the effects emphasized by the models used to analyze the
impact of NAFTA.” (Kehoe, 2005, p. 372)
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Reduced-Form Approaches
I A number of authors have followed what De la Cruz et al.
(2013) call “econometric” approaches, e.g.
difference-in-differences.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Reduced-Form Approaches
I A number of authors have followed what De la Cruz et al.
(2013) call “econometric” approaches, e.g.
difference-in-differences.
I Advantage: Require weaker assumptions ex ante.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Reduced-Form Approaches
I A number of authors have followed what De la Cruz et al.
(2013) call “econometric” approaches, e.g.
difference-in-differences.
I Advantage: Require weaker assumptions ex ante.
I Issue: generally have to give up on making statements about
general equilibrium effects, welfare.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Reduced-Form Approaches
I A number of authors have followed what De la Cruz et al.
(2013) call “econometric” approaches, e.g.
difference-in-differences.
I Advantage: Require weaker assumptions ex ante.
I Issue: generally have to give up on making statements about
general equilibrium effects, welfare.
I De la Cruz et al. (2013) provide a nice review. Here I’ll make
a few observations, with a focus on effects on productivity in
Mexico.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Lopez Cordova (2003)
I Emphasizes 3 channels:
I Import-discipline effect.
I Improved access to intermediate inputs, machinery.
I Reallocation toward more productive plants.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Lopez Cordova (2003)
I Emphasizes 3 channels:
I Import-discipline effect.
I Improved access to intermediate inputs, machinery.
I Reallocation toward more productive plants.
I Using data from Encuesta Industrial Anual for 1993-2000, first
estimates TFP using Olley and Pakes (1996) method.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Lopez Cordova (2003)
I Emphasizes 3 channels:
I Import-discipline effect.
I Improved access to intermediate inputs, machinery.
I Reallocation toward more productive plants.
I Using data from Encuesta Industrial Anual for 1993-2000, first
estimates TFP using Olley and Pakes (1996) method.
I Then regresses TFP on tariffs, controlling for plant, industry,
geographical characteristics.
NAFTA and Mexican Industrial Development
Eric Verhoogen
1
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Eric Verhoogen
NAFTA and Mexican Industrial Development
Conclusion
Sectoral Shifts and Innovation
Existing Approaches
Introduction
Lopez Cordova (2003) (cont.)
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Lopez Cordova (2003) (cont.)
I Findings:
I Mexican tariffs ↓ ⇒ TFP ↑
I U.S. tariffs ↓ ⇒ TFP ↑
I Use of imported inputs does not seem to have robust positive
effect on TFP.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Lopez Cordova (2003) (cont.)
I Findings:
I Mexican tariffs ↓ ⇒ TFP ↑
I U.S. tariffs ↓ ⇒ TFP ↑
I Use of imported inputs does not seem to have robust positive
effect on TFP.
I There are things to criticize here:
I TFP lumps mark-ups, measurment error, possibly output and
input quality with technical efficiency.
I Did not include plant effects. Are results driven by
cross-sectional variation?
but overall the results are credible that NAFTA had positive
within-sector effects on productivity.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
that enhance access to
source of a Conclusion
country’s co
(Bernard & Bradford Je
Data source: EIA
not find evidence that ex
growth. However, a poss
Figure 4. Labor productivity performance by integration status.
dent improvements in th
as opposed to importers
cess for Mexican export
given that US tariffs w
changes for importers ha
more, with the boom in
after NAFTA, many of t
selves in the new situat
exporters with far higher
catching up with these n
explanation behind the
importers. Unfortunately
port this hypothesis ex
descriptive analysis (Sect
Finally, consistent with
1994
1996
1998
2000
2002
Hoekman, 2000; Evenett
year
appears to be an importa
Exporter and Importer
Just Exporting
plants acquired, or with p
Just Importing
ever, data limitations do
Source: INEGI, BANXICO and Authors’ Calculations
nel in more detail becaus
the foreign ownership of
Figure 5. Impact of NAFTA on productivity by integration status for all
son, we decided not to pu
firms.
of FDI and the potential
this study, even if we are
The results of this paper confirm the importance of the imof productivity changes
port-competition
As previously
in various per
plots
coefficientschannel.
from regression
ofsuggested
log value-added
worker on
analysis.
empirical studies (Fernandes, 2007; Pavcnik, 2002; Tybout &
Existing Approaches
Non−integrated
Exporters
Fully Integrated
Sectoral
Shifts and Innovation
Importers
−.1
0
Treatment Effect
.1
.2
.3
De Hoyos and Iacovone (2013)
I Figure
time * dummies for importer/exporter/both.
I Results robust to throwing out switchers.
NOTES
NAFTA and Mexican Industrial
1. Development
In the paper we refer interchangeably to firm or plant to identify the
Verhoogen
4. See for Eric
example
Markuse
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Iacovone (2012)
L. Iacovone / Journal of Development Economics 99 (2012) 474–485
⁎⁎
481
Marginal Effect of % Tariff Change on % Productivity Growth
1.5
OLS
FE
(3)
(4)
0.260⁎⁎⁎
(0.015)
− 0.012⁎⁎⁎
(0.002)
0.173⁎⁎⁎
(0.008)
0.002⁎⁎⁎
0.391⁎⁎⁎
(0.014)
− 0.015⁎⁎⁎
(0.002)
0.499⁎⁎⁎
(0.011)
0.006⁎⁎⁎
(0.001)
0.045⁎⁎⁎
(0.003)
0.021⁎⁎⁎
(0.002)
0.083⁎⁎⁎
(0.009)
0.004⁎⁎⁎
(0.001)
0.086⁎⁎⁎
(0.013)
0.004
(0.003)
− 0.026
(0.016)
0.006⁎⁎⁎
(0.001)
0.006⁎⁎⁎
(0.002)
0.004⁎⁎⁎
(0.001)
Yes
Yes
Yes
No
Yes
44,176
0.075
1
0.5
0
-0.5
-1
OLS
FE
-1.5
1%
5%
10%
25%
50%
Mean 75%
90%
95%
99%
Percentile - Distance from Frontier
Fig. 3. Marginal effect of tariffs on productivity growth.
Second, wefrom
run a simple
regression
evaluate
the correlation beI(0.002)
Effects calculated
regression
of to4log
value-added/worker
on
tween the NAFTA total tariff cuts between 1994 and 2002 and average
No
interaction
of
distance
to
frontier
and
level
of
tariff
(and
industry
or plant
measures of capital or skill intensity at the 6-digit industry level in
No
Yes effects). 1994. The results suggest that while there is a positive correlation beYes
tween tariff cuts and skill intensity this is not statistically significant
IYes Distance(see
is ratio
of value-added/worker to avg value-added/worker of 5
Table 9 in the online appendix).
44,176
leading
firms
in we
each
Third,
arguesector.
that if the HO reallocation was at play we should
0.217
observe sales increasing in sectors characterized by tariff reductions.
However, in columns (1) and (2) of Table 1, we exactly showed that
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Verhoogen (2008)
Figure IV
Exports, High-quality Models as Percentage of VW Output
100
90
Percentage of total output
80
70
60
50
40
% output exported
30
% output New Beetle/Jetta/Golf
20
10
0
1988
1990
1992
1994
1996
1998
2000
2002
Notes: Output measured in physical units. Omitted model from upper curve is the Original Beetle. Data from Bulletins of
the Asociacion Mexicana de la Industria Automotriz (Mexican Automobile Industry Association).
Notes: Uses data from the Bulletins of the Asociación Mexicana de la Industria Automotriz (AMIA). Production
measured in number of vehicles.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Verhoogen (2008) (cont.)
n-Parametric Regressions, Changes 1993-1997 and 1997-2001
App. Fig. Vb: Changes in log white-collar wage
Δ log real white-collar wage
0.2
994-1997
998-2001
0.1
0
-0.1
change 1993-1997
change 1997-2001
-0.2
-0.3
1
2
-3
-2
-1
0
log domestic sales, initial year
1
2
App. Fig. Vd: Changes in log wage ratio
Notes: Uses data from balanced panel of non-maquiladora plants from the Encuesta Industrial Anual (EIA).
0.05
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Existing Approaches: Summary
I Both approaches have made progress, but both also seem to
me to be missing something important.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Existing Approaches: Summary
I Both approaches have made progress, but both also seem to
me to be missing something important.
I Applied GE:
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Existing Approaches: Summary
I Both approaches have made progress, but both also seem to
me to be missing something important.
I Applied GE:
I Sectoral shifts central to analysis.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Existing Approaches: Summary
I Both approaches have made progress, but both also seem to
me to be missing something important.
I Applied GE:
I Sectoral shifts central to analysis.
I But relatively little attention to productivity changes that are
endogenous to trade liberalization.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Existing Approaches: Summary
I Both approaches have made progress, but both also seem to
me to be missing something important.
I Applied GE:
I Sectoral shifts central to analysis.
I But relatively little attention to productivity changes that are
endogenous to trade liberalization.
I Reduced-form:
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Existing Approaches: Summary
I Both approaches have made progress, but both also seem to
me to be missing something important.
I Applied GE:
I Sectoral shifts central to analysis.
I But relatively little attention to productivity changes that are
endogenous to trade liberalization.
I Reduced-form:
I Documents productivity changes.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Existing Approaches: Summary
I Both approaches have made progress, but both also seem to
me to be missing something important.
I Applied GE:
I Sectoral shifts central to analysis.
I But relatively little attention to productivity changes that are
endogenous to trade liberalization.
I Reduced-form:
I Documents productivity changes.
I But relatively little attention to effects of sectoral shifts on
ongoing productivity growth.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Sectoral Shifts and Innovation
I Old-fashioned idea (Prebisch, 1950; Matsuyama, 1992):
I Different activities are associated with different inherent rates
of innovation, productivity growth.
I Liberalization changes to pattern of specialization, may lead to
specialization in non-dynamic activities.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Sectoral Shifts and Innovation
I Old-fashioned idea (Prebisch, 1950; Matsuyama, 1992):
I Different activities are associated with different inherent rates
of innovation, productivity growth.
I Liberalization changes to pattern of specialization, may lead to
specialization in non-dynamic activities.
I What follows is very low-tech, more “analytical narrative”
than definitive analysis.
I The hope is that it stimulates more in-depth research into the
Mexican and similar cases.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Sectoral Shifts and Innovation
I Old-fashioned idea (Prebisch, 1950; Matsuyama, 1992):
I Different activities are associated with different inherent rates
of innovation, productivity growth.
I Liberalization changes to pattern of specialization, may lead to
specialization in non-dynamic activities.
I What follows is very low-tech, more “analytical narrative”
than definitive analysis.
I The hope is that it stimulates more in-depth research into the
Mexican and similar cases.
I No attempt to separate effects of NAFTA, peso devaluation,
lingering effects of 1980s liberalization. All probably point in
same direction.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Sectoral Shifts and Innovation
I Old-fashioned idea (Prebisch, 1950; Matsuyama, 1992):
I Different activities are associated with different inherent rates
of innovation, productivity growth.
I Liberalization changes to pattern of specialization, may lead to
specialization in non-dynamic activities.
I What follows is very low-tech, more “analytical narrative”
than definitive analysis.
I The hope is that it stimulates more in-depth research into the
Mexican and similar cases.
I No attempt to separate effects of NAFTA, peso devaluation,
lingering effects of 1980s liberalization. All probably point in
same direction.
I More details on my website (text of a talk I gave in
Monterrey, published in Boletin Informativo Techint.)
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
2
Employment Growth vs. Skill Intensity, 1988-1998
Apparel & textile prod.
Transportation equip.
−.5
0
.5
1
Other 4−digit NAICS industries
−1.5
−1
change in log(employment), 1988−1998
1.5
Electrical/electronic prod.
0
.1
.2
.3
.4
.5
.6
Share >=12 yrs education (in large plants), 1998
Notes: Data on employment growth are from the INEGI Economic Censuses from 1989 and 1999 (containing
information from previous year). Data on schooling are from 1999 ENESTyC. Each symbol represents a 4-digit
industry in the North American Industrial Classification System (NAICS). The size of the symbols reflect
employment in the industry in 1998. The fitted regression line is weighted by employment in 1998. See Figure A1
of Verhoogen (2008).
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
2
Employment Growth vs. Capital Intensity, 1988-1998
Apparel & textile prod.
Transportation equip.
−.5
0
.5
1
Other 4−digit NAICS industries
−1.5
−1
change in log(employment), 1988−1998
1.5
Electrical/electronic prod.
2
3
4
5
6
7
8
log capital−labor ratio, 1998
Notes: Data on employment growth and capital-labor ratio are from the INEGI Economic Censuses from 1989 and
1999 (containing information from previous year). Each symbol represents a 4-digit industry in the North American
Industrial Classification System (NAICS). The size of the symbols reflect employment in the industry in 1998. The
fitted regression line is weighted by employment in 1998. A similar graph (using a different industry classification)
appeared as Figure A2 of Verhoogen (2008).
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
2
Employment Growth vs. Skill Intensity, 1998-2008
Apparel & textile prod.
Transportation equip.
−.5
0
.5
1
Other 4−digit NAICS industries
−1.5
−1
change in log(employment), 1998−2008
1.5
Electrical/electronic prod.
0
.1
.2
.3
.4
.5
.6
Share >=12 yrs education (in large plants), 1998
Notes: Data on employment growth are from the INEGI Economic Censuses from 1989 and 1999 (containing
information from previous year). Data on schooling are from 1999 ENESTyC. Each symbol represents a 4-digit
industry in the North American Industrial Classification System (NAICS). The size of the symbols reflect
employment in the industry in 1998. The fitted regression line is weighted by employment in 1998.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
2
Employment Growth vs. Capital Intensity, 1998-2008
Apparel & textile prod.
Transportation equip.
−.5
0
.5
1
Other 4−digit NAICS industries
−1.5
−1
change in log(employment), 1998−2008
1.5
Electrical/electronic prod.
2
3
4
5
6
7
8
log capital−labor ratio, 1998
Notes: Data on employment growth are from the INEGI Economic Censuses from 1989 and 1999 (containing
information from previous year). Data on schooling are from 1999 ENESTyC. Each symbol represents a 4-digit
industry in the North American Industrial Classification System (NAICS). The size of the symbols reflect
employment in the industry in 1998. The fitted regression line is weighted by employment in 1998.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Maquiladora and Total Industry Employment
Employment (thousands)
200
400
Employment (thousands)
200
400
600
Electrical and Electronic Equipment
600
Apparel
all NAICS 315
1995
2000
2005
2010
All NAICS 334 and 335
maquiladoras
0
0
maquiladoras
1990
1990
1995
2000
2005
2010
Employment (thousands)
200
400
600
Transportation Equipment
All NAICS 336
0
maquiladoras
1990
1995
2000
2005
2010
Notes: Maquiladora employment from EMIME for 1988-2006; total industry employment from Economic Censuses
of 1989, 1994, 1999, 2004, and 2009. Apparel and textile products (maquila group 2) mapped to NAICS 315
(apparel manufacturing); transportation equipment (maquila group 6) to NAICS 336 (transportation equipment
manufacturing); electrical and electronic equipment (maquila groups 8 and 9) to NAICS 334 and 335 (computer
and electronic equipment; and electrical equipment, appliances, and components).
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Means by Sub-Sector: Apparel, Elect. & Trans. Equip.
non-maquiladoras
Employment
non-exporters
(1)
exporters
(2)
maquiladoras
(3)
315.43
(8.23)
0.08
(0.01)
254.26
(19.11)
0.28
(0.01)
70.18
(0.56)
7.86
(0.04)
3.59
(0.06)
7.45
(0.14)
41.47
(1.22)
6.25
(0.09)
438.97
(11.07)
30.81
(0.72)
0.29
(0.01)
309.07
(14.45)
0.32
(0.01)
70.75
(0.46)
8.15
(0.04)
3.92
(0.05)
9.32
(0.15)
40.54
(1.06)
6.59
(0.08)
969.67
(30.02)
96.52
(0.63)
0.84
(0.02)
54.87
(7.18)
0.19
(0.01)
83.04
(0.63)
7.37
(0.06)
3.83
(0.10)
9.33
(0.27)
72.37
(2.66)
3.53
(0.08)
1423
1774
557
Export percentage of sales
Foreign ownership indicator
Capital-labor ratio
Share with >= 12 years schooling
Percentage blue-collar
Years of schooling, blue-collar
Blue-collar hourly wage
White-collar hourly wage
Turnover rate
Tenure (years)
N
Notes: Standard errors of means in parentheses. Sample is plants with ≥ 100 employees in 1999 ENESTyC.
Capital-labor ratio measured in thousands of 1998 pesos; blue-collar and white-collar hourly wage in 1998 pesos.
Average 1998 nominal exchange rate: 9.1 pesos/dollar.
Apparel
Transport Equip.
Electronics
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
The Story So Far
I From 1988-1998, manufacturing sector specialized in less
capital- and skill-intensive activities, both across sectors and
within sectors (i.e. to maquilas).
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
The Story So Far
I From 1988-1998, manufacturing sector specialized in less
capital- and skill-intensive activities, both across sectors and
within sectors (i.e. to maquilas).
I From 1998-2008, these sectors/subsectors tended to stagnate.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Role of China
I A common explanation: Mexico had bad luck.
I Just as Mexico was poised to grow, China entered.
I China had similar pattern of specialization in exports to U.S.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Role of China
I A common explanation: Mexico had bad luck.
I Just as Mexico was poised to grow, China entered.
I China had similar pattern of specialization in exports to U.S.
I There is definitely evidence to support the China story:
I Utar and Torres Ruiz (2013) yesterday.
I Kumler (2014): applies approach of Autor, Dorn and Hanson
(2013) in Mexico.
I Lopez Cordova, Micco and Molina (2008), Hanson and
Robertson (2010), Hsieh and Ossa (2011).
China-Mexico export similarity
NAFTA and Mexican Industrial Development
US import shares
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Role of China
I A common explanation: Mexico had bad luck.
I Just as Mexico was poised to grow, China entered.
I China had similar pattern of specialization in exports to U.S.
I There is definitely evidence to support the China story:
I Utar and Torres Ruiz (2013) yesterday.
I Kumler (2014): applies approach of Autor, Dorn and Hanson
(2013) in Mexico.
I Lopez Cordova, Micco and Molina (2008), Hanson and
Robertson (2010), Hsieh and Ossa (2011).
China-Mexico export similarity
US import shares
I But here I would like to argue that China is not the whole
story, that Mexico would have had problems even if China had
not entered.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
R&D Measure, ENESTyC 1999
I Survey asked: “Since 1997, has the establishment undertaken
R&D?”
I (If yes) “What did the R&D principally consist of?”
“Design of new products”
“Process improvements”
“Product quality improvements”
“Design/Improvement/Manufacture of machinery or
equipment”
I “Other”
I
I
I
I
I N.B.: This is a broad, inclusive definition of R&D, not just
patents.
I Not perfect, but not bad as a first pass.
I Code as 0/1.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
.5
Share of plants performing R&D, 1998
1
R&D Intensity vs Skill Intensity, 1998
Apparel & textile prod.
Transportation equip.
Electrical/electronic prod.
0
Other 4−digit NAICS industries
0
.1
.2
.3
.4
.5
.6
Share >= 12 years schooling, 1998
Notes: Size of plotting symbols reflects employment in industry. The fitted regression line is weighted by
employment. The estimated slope is 0.53 with standard error 0.13; the R2 is 0.16. Industry-level averages are for
large plants (≥ 100 employees).
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
.5
Share of plants performing R&D, 1998
1
R&D Intensity vs Capital Intensity, 1998
Apparel & textile prod.
Transportation equip.
Electrical/electronic prod.
0
Other 4−digit NAICS industries
2
3
4
5
6
7
8
log capital−labor ratio, 1998
Notes: Size of plotting symbols reflects employment in industry. The fitted regression line is weighted by
employment. The estimated slope is 0.05 with standard error 0.01; the R2 is 0.14. Industry-level averages are for
large plants (≥ 100 employees).
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
R&D Intensity by Sector
non-maquiladoras
All manufacturing
Apparel
Electrical and Electronic Products
Transportation Equipment
non-exporters
(1)
exporters
(2)
maquiladoras
(3)
0.36
(0.01)
0.19
(0.03)
0.35
(0.07)
0.40
(0.07)
0.50
(0.01)
0.33
(0.04)
0.54
(0.04)
0.62
(0.04)
0.41
(0.02)
0.34
(0.05)
0.45
(0.03)
0.54
(0.10)
Source: ENESTyC 1999.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Alternative Innovation Measure I: Patents per Capita
INNOVATION IN MEXICO: NAFTA IS NOT ENOUGH
251
Figure 6.2 Patents per Million Workers, 1960–2000
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0
19
80
s
19
90
–9
4
19
95
–2
00
0
19
70
s
19
60
s
94
19
95
–2
00
0
19
80
s
19
90
–
19
70
s
19
60
s
80
70
60
50
40
30
20
10
0
East Asia
Latin America and the Caribbean
Mexico
Republic of Korea
120
450
400
350
300
250
200
150
100
50
0
100
80
60
40
20
United States
Canada
19
90
–9
4
19
95
–2
00
0
19
80
s
19
70
s
19
60
s
19
90
–9
4
19
95
–2
00
0
19
80
s
19
70
s
19
60
s
0
High-income countries
Source: U.S. Office of Patents and Trademarks.
Notes: From Lederman, Maloney and Servén (2005), based on data from the U.S. Office of Patents and
Trademarks.
global and long time coverage, and especially because it is commonly
understood that the United States offers perhaps the most advanced lev-
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Alternative Innovation Measure II: R&D Spending/GDP
Country
R&D spending/GDP (%)
Mexico
Chile
China
Korea
U.S.
Canada
.38
.65
.65
2.34
2.59
1.76
Notes: Data from World Bank World Development Indicators for 1998.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Summary
I Integration led Mexico to specialize in less capital- and
skill-intensive activities, both across and within sectors.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Summary
I Integration led Mexico to specialize in less capital- and
skill-intensive activities, both across and within sectors.
I These sectors that Mexico tended to be less innovative.
I This did not have to be true. But the correlation appears quite
robust.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Summary
I Integration led Mexico to specialize in less capital- and
skill-intensive activities, both across and within sectors.
I These sectors that Mexico tended to be less innovative.
I This did not have to be true. But the correlation appears quite
robust.
I The sectoral shifts thus tended to dampen the overall rate of
innovation in the economy.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Summary
I Integration led Mexico to specialize in less capital- and
skill-intensive activities, both across and within sectors.
I These sectors that Mexico tended to be less innovative.
I This did not have to be true. But the correlation appears quite
robust.
I The sectoral shifts thus tended to dampen the overall rate of
innovation in the economy.
I What if China had not entered?
I We don’t observe the counterfactual, but my sense is that
there would always be another country moving up the product
ladder — Malaysia, Thailand, Indonesia, Vietnam, ...
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Further Thoughts
I More research is needed, needless to say.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Further Thoughts
I More research is needed, needless to say.
I But patterns suggest that there may be a trade-off between
static allocative efficiency and long-term productivity growth.
I Liberalization alone may not to be enough to bring about
sustained growth.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Further Thoughts
I More research is needed, needless to say.
I But patterns suggest that there may be a trade-off between
static allocative efficiency and long-term productivity growth.
I Liberalization alone may not to be enough to bring about
sustained growth.
I My own view is that policy-makers should consider
interventions to promote the sorts of activities that generate
innovation and productivity growth.
I This argument relies on the idea that innovation generates
positive externalities, which I am exploring empirically in other
work with co-authors (Atkin et al., 2014)
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Further Thoughts (cont.)
I I do not want to argue that such interventions need to happen
at the border, in the form of tariffs or other trade barriers.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Further Thoughts (cont.)
I I do not want to argue that such interventions need to happen
at the border, in the form of tariffs or other trade barriers.
I And it is true that governments have no special knowledge
about which sectors/firms/ideas/technologies are going to be
successful in the future.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Further Thoughts (cont.)
I I do not want to argue that such interventions need to happen
at the border, in the form of tariffs or other trade barriers.
I And it is true that governments have no special knowledge
about which sectors/firms/ideas/technologies are going to be
successful in the future.
I But I think there is a strong case for policies that provide
broad-based (sometimes called “horizontal” (Lederman and
Maloney, 2012)) support for innovative activities.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
References I
Arias, Javier, Oliver Azuara, Pedro Bernal, James J. Heckman, and Cajeme Villarreal, “Policies To Promote Growth
and Economic Efficiency in Mexico,” 2010. NBER working paper no. 16554.
Atkin, David, Azam Chaudhry, Shamyla Chaudry, Amit K. Khandelwal, and Eric Verhoogen, “Organizational
Barriers to Technology Adoption: Evidence from Soccer-Ball Producers in Pakistan,” 2014. Mimeo, Columbia
University.
Autor, David H., David Dorn, and Gordon H. Hanson, “The China Syndrome: Local Labor Market Effects of
Import Competition in the United States,” American Economic Review, 2013, 103 (6), 2121–68.
De Hoyos, Rafael E. and Leonardo Iacovone, “Economic Performance under NAFTA: A Firm-Level Analysis of the
Trade-productivity Linkages,” World Development, 2013, 44 (0), 180 – 193.
De la Cruz, Justino, David Riker, and Bennet Voorhees, “Econometric Estimates of the Effects of NAFTA: A
Review of the Literature,” 2013. U.S. International Trade Commission Office of Economics Working Paper
2013-12A, Dec.
Devlin, Robert, Antoni Estevadeordal, and Andres Rodriguez-Clare, The Emergence of China: Challenges and
Opportunities for Latin America and the Carribean, Harvard University Press, 2006.
Haber, Stephen, “Why Institutions Matter: Banking and Economic Growth in Mexico,” 2004. Stanford Center for
International Development working paper no. 234.
Hanson, Gordon H., “Why Isn’t Mexico Rich?.,” Journal of Economic Literature, 2010, 48 (4), 987 – 1004.
and Raymond Robertson, “China and the Manufacturing Exports of Other Developing Countries,” in “China’s
Growing Role in World Trade,” NBER Conference Report series. Chicago and London: University of Chicago
Press, 2010, pp. 137 – 159.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
References II
Hsieh, Chang-Tai and Ralph Ossa, “A Global View of Productivity Growth in China,” 2011. NBER working paper
no. 16778.
Iacovone, Leonardo, “The better you are the stronger it makes you: Evidence on the asymmetric impact of
liberalization,” Journal of Development Economics, 2012, 99 (2), 474 – 485.
Kehoe, Timothy J., “An Evaluation of the Performance of Applied General Equilibrium Models of the Impact of
NAFTA,” in Timothy J. Kehoe, T. N. Srinivasan, and John Whalley, eds., Frontiers in Applied General
Equilibrium Modeling: In Honor of Herbert Scarf, Cambridge University Press, 2005.
and Kim J. Ruhl, “Why Have Economic Reforms in Mexico Not Generated Growth?.,” Journal of Economic
Literature, 2010, 48 (4), 1005 – 1027.
Krueger, Anne, “NAFTA’s Effects: A Preliminary Assessment,” World Economy, June 2000, 23 (6), 761–75.
Kumler, Todd, “Chinese Competition and Mexican Labor Markets,” 2014. Unpub. paper, Columbia University.
Lederman, Daniel and William Maloney, Does What You Export Matter? In Search of Empirical Guidance for
Industrial Policies, Washington DC: The World Bank, 2012.
,
, and Luis Servén, Lessons from NAFTA for Latin America and the Caribbean, Stanford CA: Stanford
University Press, 2005.
Levy, Santiago, Good Intentions, Bad Outcomes: Social Policy, Informality and Economic Growth in Mexico,
Brookings Institution Press, Washington D.C., 2008.
Lopez Cordova, Ernesto, “NAFTA and Manufacturing Productivity in Mexico,” Economia: Journal of the Latin
American and Caribbean Economic Association, 2003, 4 (1), 55 – 88.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
References III
, Alejandro Micco, and Danielken Molina, “How Sensitive Are Latin American Exports to Chinese Competition
in the U.S. Market?,” Economia: Journal of the Latin American and Caribbean Economic Association, 2008, 8
(2), 117 –.
Matsuyama, Kiminori, “Agricultural Productivity, Comparative Advantage, and Economic Growth,” Journal of
Economic Theory, 1992, 58.
Olley, G. Steven and Ariel Pakes, “The Dynamics of Productivity in the Telecommunications Industry,”
Econometrica, 1996, 64 (6), 1263–1297.
Prebisch, Raul, “The Economic Development of Latin America and its Principal Problems,” 1950. New York:
United Nations, Reprinted in Economic Bulletin for Latin America in 1962.
Utar, Hale and Luis B. Torres Ruiz, “International Competition and Industrial Evolution: Evidence from the Impact
of Chinese Competition on Mexican Maquiladoras,” Journal of Development Economics, 2013, 105, 267 – 287.
Verhoogen, Eric, “Trade, Quality Upgrading and Wage Inequality in the Mexican Manufacturing Sector,” Quarterly
Journal of Economics, 2008, 123 (2), 489–530.
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
NAFTA and Mexican Industrial Development
Sectoral Shifts and Innovation
Conclusion
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Means by Sub-Sector: Apparel
non-maquiladoras
Employment
non-exporters
(1)
exporters
(2)
maquiladoras
(3)
260.19
(17.90)
0.02
(0.01)
64.96
(29.22)
0.15
(0.02)
84.66
(1.62)
7.25
(0.16)
2.34
(0.13)
5.50
(0.44)
55.17
(4.51)
4.91
(0.31)
460.66
(39.51)
46.93
(3.53)
0.05
(0.02)
48.38
(8.87)
0.18
(0.02)
82.91
(1.46)
7.40
(0.14)
2.43
(0.11)
6.38
(0.55)
60.19
(5.44)
4.45
(0.29)
813.88
(57.79)
97.40
(1.13)
0.60
(0.05)
28.90
(7.56)
0.14
(0.01)
88.48
(1.18)
7.21
(0.14)
3.03
(0.17)
6.84
(0.50)
60.20
(4.90)
3.29
(0.16)
112
105
111
Export percentage of sales
Foreign ownership indicator
Capital-labor ratio
Share with >= 12 years schooling
Percentage blue-collar
Years of schooling, blue-collar
Blue-collar hourly wage
White-collar hourly wage
Turnover rate
Tenure (years)
N
Notes: Standard errors of means in parentheses. Sample is plants with ≥ 100 employees in 1999 ENESTyC.
Capital-labor ratio measured in thousands of 1998 pesos; blue-collar and white-collar hourly wage in 1998 pesos.
Average 1998 nominal exchange rate: 9.1 pesos/dollar.
Return
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Means by Sub-Sector: Transportation Equipment
non-maquiladoras
Employment
non-exporters
(1)
exporters
(2)
maquiladoras
(3)
344.24
(46.90)
0.28
(0.07)
212.92
(90.57)
0.27
(0.02)
75.35
(1.89)
7.79
(0.19)
3.55
(0.26)
7.24
(0.61)
45.99
(7.59)
5.37
(0.34)
637.01
(52.91)
41.32
(2.68)
0.49
(0.04)
294.49
(46.77)
0.34
(0.02)
73.40
(1.01)
8.60
(0.12)
4.73
(0.22)
11.17
(0.52)
33.11
(3.18)
6.88
(0.28)
1342.07
(82.97)
96.33
(1.28)
0.97
(0.02)
57.30
(22.49)
0.20
(0.01)
84.29
(1.48)
7.43
(0.14)
3.64
(0.19)
9.81
(0.65)
69.47
(6.74)
3.74
(0.20)
46
141
92
Export percentage of sales
Foreign ownership indicator
Capital-labor ratio
Share with >= 12 years schooling
Percentage blue-collar
Years of schooling, blue-collar
Blue-collar hourly wage
White-collar hourly wage
Turnover rate
Tenure (years)
N
Notes: Standard errors of means in parentheses. Sample is plants with ≥ 100 employees in 1999 ENESTyC.
Capital-labor ratio measured in thousands of 1998 pesos; blue-collar and white-collar hourly wage in 1998 pesos.
Average 1998 nominal exchange rate: 9.1 pesos/dollar.
Return
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
Conclusion
Means by Sub-Sector: Electrical/Electronic Equipment
non-maquiladoras
Employment
non-exporters
(1)
exporters
(2)
maquiladoras
(3)
334.83
(105.70)
0.25
(0.09)
132.03
(74.50)
0.29
(0.04)
73.35
(3.56)
8.03
(0.27)
3.04
(0.25)
8.74
(1.00)
39.68
(5.52)
6.18
(0.64)
585.75
(56.59)
39.94
(3.33)
0.52
(0.05)
223.10
(26.16)
0.31
(0.02)
71.88
(1.57)
8.52
(0.12)
3.84
(0.17)
10.17
(0.53)
41.19
(4.09)
6.21
(0.29)
1081.90
(51.35)
98.24
(0.78)
0.92
(0.02)
68.35
(14.69)
0.22
(0.01)
80.79
(1.06)
7.54
(0.09)
4.15
(0.17)
10.82
(0.48)
73.60
(4.56)
3.50
(0.12)
24
109
191
Export percentage of sales
Foreign ownership indicator
Capital-labor ratio
Share with >= 12 years schooling
Percentage blue-collar
Years of schooling, blue-collar
Blue-collar hourly wage
White-collar hourly wage
Turnover rate
Tenure (years)
N
Notes: Standard errors of means in parentheses. Sample is plants with ≥ 100 employees in 1999 ENESTyC.
Capital-labor ratio measured in thousands of 1998 pesos; blue-collar and white-collar hourly wage in 1998 pesos.
Average 1998 nominal exchange rate: 9.1 pesos/dollar.
Return
NAFTA and Mexican Industrial Development
Eric Verhoogen
Introduction
Existing Approaches
Sectoral Shifts and Innovation
US Import Shares fromHanson:
China,
Mexico
Why Isn’t Mexico Rich?
Conclusion
1001
0.1
Mexico
China
0.08
0.06
0.04
0.02
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Year
Figure 2: Share of U.S. Manufacturing Imports
Source: Hanson (2010).
Return
comparative advantage in another third of
its products (including automobiles and auto
parts, industrial machinery, and ­beverages).
NAFTA and Mexican Industrial Development
(2010) take a more theoretical approach,
introducing Ricardian productivity differences into a Marc J. Melitz (2003) model
Eric Verhoogen
The increasing similarity between the Chinese and Latin America export baskets is not unlike the
Introductiongrowth in the similarity
Existing
Approaches
and Figure
Innovation
between
East Asia (China excluded) Sectoral
and LatinShifts
America.
5.2 shows the
Conclusion
ESI values between selected Latin American countries and regions and East Asia. The similarity of
exports between Latin America (particularly Brazil and Mexico) and East Asian economies was
relatively pronounced in the early-1990s; this similarity has increased during the same period,
particularly for Mexico and Latin America as a whole.6
Export Similarity between Mexico and China
Figure 5.2
Export Similarity between Selected Latin American Countries and
East Asia in the US Market, 1992-2002
45
40
35
Percent
30
25
20
15
10
5
0
Latin America
Argentina
1992
Brazil
Chile
1995
Colombia
2000
Mexico
Central America
2002
Source: IDB-INT calculations based on UN/Comtrade data.
Within manufacturing product categories, moreover, China’s export prices (measured in unit
values)
are generally
lower and
thanRodriguez-Clare
the prices received
by other developing economies in Latin America
Source:
Devlin,
Estevadeordal
(2006).
and Asia. The premium received by those countries over China is highest in machinery and lowest in
Return
apparel. One explanation for this differential is that products from those regions offer higher quality
or have more attributes than products from China, thereby raising their value. This would be
consistent with differences in comparative advantage: countries that are relatively abundant in human
NAFTA andand
Mexican
Industrial
Development
physical
capital can
improve quality or add product features. A competing explanation is that the
Eric Verhoogen