Texas Border Cities Illustrate Benefits and Challenges of ...
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Texas Border Cities IllustrateBenefits and Challenges of TradeU.S.–Mexico Ties in the 21st Century: Trade and Immigration in a New Era
Centro de Investigación y Docencia Económicas (CIDE)Federal Reserve Bank of DallasMay 12, 2017
Jesus CañasSenior Business EconomistFederal Reserve Bank of Dallas
Outline
Brief discussion about NAFTA In terms of trade and Growth
Texas and NAFTA
Border cities Have they progressed?
How?
Summary
A Historic Agreement Canada and U.S. already had an agreement Adding Mexico broke the mold
NAFTA’s stated objectives Eliminate barriers to trade & investment Remove tariffs and non-tariff barriers Facilitate cross border movement Resolve disputes
U.S. fears: Massive job losses, falling wages Fears unrealized, but so were aspirations Elusive Mexican economic development
U.S. Trade with NAFTA Partners More than Doubled Since 1993
1993 2016Exports Billions of Dollars % ChangeCanada 166.9 266.8 59.9Mexico 69.1 231.0 234.4
ImportsCanada 184.8 278.1 50.5Mexico 66.3 294.2 343.6
NOTE: Data is in billions of 2016 U.S. dollars.SOURCE: U.S. Census Bureau.
Foreign Direct Investment Higher After NAFTA
5
1.6
0.3
8.4
1.5
0
1
2
3
4
5
6
7
8
9
US to Mexico Mexico to US
Billions, Real 2016 $
Average Pre-NAFTAAverage NAFTA
NOTE: Pre-NAFTA U.S. to Mexico represents years 1982-1993; Pre-NAFTA Mexico to U.S. represents years 1987-1993.SOURCE: Bureau of Economic Analysis.
Trade, Wage Effects of NAFTA Tariff Reductions
Country Volume of Trade Terms of Trade Real Wages
Mexico ++ - ++
Canada + - +
United States + + +
SOURCE: Lorenzo Caliendo and Fernando Parro, “Estimates of the Trade and Welfare Effects of NAFTA,” NBER working paper No. 18508, 2012.
Trade, Wage Effects of NAFTA Tariff Reductions On the other hand, recent research suggests: Blue-collar workers, whose industries have been most affected by
Mexican imports—including along the border—experienced substantially lower wage growth than their counterparts in other industries
Limitations on the mobility of workers both geographically and across industries appear to be very important
SOURCE: “Looking for Local Labor Market Effects of NAFTA,” by John McLaren and Hakobyan Shushanik, Review of Economics and Statistics, vol. 98, no. 4, October 2016.
U.S. manufacturing has been able to mitigate some of the impact of economic shocks
China’s entry to the World Trade Organization in 2002
Labor displacement resulting from increased automation
Great Recession
SOURCE: “Offshoring and Volatility: Evidence from Mexico’s Maquiladora Industry,” by Paul R. Bergin, Robert C. Feenstra, and Gordon H. Hanson, American Economic Review, vol. 99, no. 4, 2009, pp. 1664–71
Still Unequal Trading Partners
SOURCE: OECD.
0
10,000
20,000
30,000
40,000
50,000
60,000
Canada Mexico U.S.
19942015
GDP per capita
2005 U.S. $, PPP adjusted
-20
-15
-10
-5
0
5
10
15
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16
Mexico U.S.
U.S. and Mexico Business Cycle Synchronicity Grows post NAFTA
Corr: 0.78Corr: 0.13
Percent
NOTE: Monthly changes in manufacturing component of industrial production.SOURCES: INEGI; Federal Reserve Board.
NAFTA and Texas
Texas Exports Grow Faster in Post-NAFTA Period
0
100
200
300
400
500
600
700
1988 1991 1994 1997 2000 2003 2006 2009 2012 2015SOURCES: WISERTrade; Census Bureau.
Index, 1988 = 100; real values
Texas
U.S. without Texas
Pre-NAFTA Post-NAFTA
NAFTA and Texas Texas exports reached $247 billion in 2015 California at $163 billion Washington state $86 billion
Manufactured goods exports supported an estimated 990,000 jobs in Texas in 2015 Equal to 8.2 of the total
75 percent of U.S.–Mexico land trade (some $343 billion in 2015) crosses via a Texas port of entry
Texas Exports to Mexico Quite Diverse
Computers and electronics, 26%
Transportation equipment, 12%
Petroleum & coal products, 11%
Chemicals, 10%
Electrical equipment, 8%
Other, 7%
Machinery, ex. electrical, 6%
Plastics & rubber products, 4%
Primary metal mfg., 4%
Fabricated metal products, 4%Food & kindred products, 3%
Oil & gas, 3% Misc. manufactured goods, 2%
NOTES: Data from 2015. "Other" includes all categories under 2 percent.SOURCE: U.S. Trade Database, Census Bureau.
Texas Border Cities More than 45 percent of an estimated 49,652 Texas
job losses due to NAFTA were concentrated along the Texas–Mexico border
Foreign Firms’ Hiring Offsets Job Lost
Texas Exports Mainly go to Northern States
SOURCE: Bureau of Transportation Statistics.
NorthernPer capita income: $12,627Informal labor: 43% of LF
Poverty rate: 30%
North-centralPer capita income: $8,777Informal labor: 57% of LF
Poverty rate: 43%
CentralPer capita income: $10,415Informal labor: 63% of LF
Poverty rate: 49%
SouthernPer capita income: $6,597Informal labor: 69% of LF
Poverty rate: 57%
Texas Trades with the Rich and Industrialized North
Title in here
Maquiladoras Drive Employment Growth In Texas Border Cities
Estimation method: IV El Paso Laredo McAllen BrownsvilleCity Level 2.77* 4.62 6.58* 2.21
Construction 0.20 3.19 4.04* 1.29*Manufacturing -1.28 1.02 1.64 0.66Transportation 5.30* 7.21* 6.63* 4.6*Wholesale 0.43 1.96 4.01* 0.84Retail 1.31 0.66 3.21* 1.34*FIRE 2.12* 8.23* 4.63* 0.64Services 1.84* 5.93* 7.38* 3.89*
NOTES: This table shows elasticity estimates. That is the table shows the percentage increase in local employment from a 10 percent increase in maquiladora production for each Texas Border Cities. * indicates significant at the 10% level.SOURCE: J. Cañas, R. Coronado, R. Gilmer, E. Saucedo (2011) “The Impact of Maquiladoras on U.S. Border Cities”, Federal Reserve Bank of Dallas, working paper.
Average Unemployment Rate Declined Along The Texas–Mexico Border After NAFTA
13.3
10.8
14.0
18.6
9.48.2 7.5
11.6
02468
101214161820
Brownsville El Paso Laredo McAllen
1980-19931994-2016
Percent
Source: Bureau of Labor Statistics.
Texas Border Cities Narrowing the Income Gap With Nation
(income as a share of U.S. total)
64.6
49.3 48.151.2
67.8
61.9
51.1
55.8
40
45
50
55
60
65
70
75
El Paso Laredo McAllen Brownsville
1990 2015
Percent
SOURCE: Bureau of Economic Analysis.
Texas More Competitive Domestically (RCAs)
0.00.20.40.60.81.01.21.41.61.82.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Percent
Texas
California
Illinois
Ohio
SOURCE: “Texas Comparative Advantage and Manufacturing Exports,” by Jesus Cañas, Luis Bernardo Torres Ruiz and Christina English, in Ten-Gallon Economy, Pia M. Orrenius, Jesus Cañas and Michael Weiss, eds., New York, Palgrave Macmillan, 2015 , pp. 159–179
Summary More trade and investment NAFTA record on growth mixed
The Texas economy has been transitioning toward a service-based economy Lean and increasingly productive manufacturing sector 4 million jobs gained in Texas between 1994 and 2015 Per capita real income up from $30,000 to $47,000
Texas border cities have adjusted to trade taking advantage of geographic location growth in northern Mexico supplying business services
Useful case study to help trade-impacted communities transition to the next level of economic development