Free trade and regional development in northern Mexico/Libre comercio y desarrollo regional en el norte de Mexico.

Author:de Bell, Leendert
 
FREE EXCERPT

de Bell, L. (2010). "Free trade and regional development in northern Mexico", Esic Market, Vol. 136, pp. 73-91.

Introduction

Since the 1980s, classic market theories promoting liberalisation, deregulation, and privatisation have gained terrain throughout most of Latin America and the rest of the world, and rapidly became part of the dominant economic discourse. The so-called Washington Consensus prescribed the same structural adjustment recipes for all nations, regardless of their level of development, regime type, or cultural context. Following the example of the "Asian Tigers", export-oriented industrialization, based mainly on foreign direct investment (FDI), was considered the surest recipe to capture the potential benefits of globalization processes.

In this context, the free trade agreement between Mexico, the United States and Canada, effectuated in 1994, can be considered one of the most radical trade experiments in history. The North American Free Trade Agreement (NAFTA) created the world's largest free trade area in terms of gross domestic product (GDP), but most of all, NAFTA represented a new stage in world trade policy because it was the first treaty between economies with fundamentally different levels of development. From the perspective of president Salinas (1988-1994), NAFTA would finally secure Mexico's entry ticket to the "First World" after a decade of economic crisis and drastic restructuring. Not surprisingly, NAFTA has attracted considerable political and academic interest with regard to its effects on Mexico's economy.

Fifteen years after the start of NAFTA, many politicians insist that Mexico has made progress in many areas. Although it is particularly difficult to isolate the effects of NAFTA from other major events, such as the devaluation of 1994 and the prolonged growth of consumption in the United States during the 1990s, Mexico's economic performance during the past one-and-a-half decade has been impressive in terms of FDI, exports and GDP growth. However, when looking beyond these macroeconomic objectives, NAFTA has turned out to be--to say the least--a mixed blessing, since there is increasing empirical evidence that not all regions, economic sectors and social groups have managed to benefit from the increased economic integration.

In contrast to what is suggested by the economic orthodoxy of the international financial institutions and many policymakers, imitating a successful development model offers no guarantees for success elsewhere. Globalization processes are always mediated by specific circumstances and local practices, which involve a large number of actors--for example governments, entrepreneurs and unions--and as such generate different outcomes. The main objective of this study is, by means of a case study, to come to a more critical assessment of this economic model with regard to the regional and social distribution of economic growth, as well as the long-term sustainability of the dominant development model.

The particular focus concerns the economic dynamic in the state of Coahuila, located in the northeast of Mexico, analyzing how specific factors and different local actors influenced the outcomes of this development model. For several reasons, Coahuila makes an interesting case with respect to the effects of the economic transition. During the past decades, and particularly since NAFTA, Coahuila was radically transformed, becoming one of Mexico's most successful states in terms of export activities, mainly as a result of substantial amounts of FDI in the automotive and garment industry. These new investments contributed strongly to the state's GDP growth, but on the sub-regional level one can distinguish growing economic and social inequalities.

The first section contains a brief review of the literature, followed by the methodology used in this analysis. The central part presents the main socio-economic characteristics of the state of Coahuila and analyzes its government policy with regard to NAFTA. The subsequent section describes the impact of NAFTA on the state of Coahuila, both quantitatively and qualitatively. The final section includes the conclusions and raises issues for discussion.

Literature review

At present, one of the main challenges of development theory and practice has become how to capitalize on globalization as a tool for local development. Studies dedicated to the analysis of global value chains--the global organization of specific industries and the relationships between firms at different organizational and geographical levels--have allowed us a valuable understanding of the processes that link the global with the local (cf. Gereffi & Korzeniewicz, 1994; Bair & Gereffi, 2001; Dicken, 2007). In addition, it is common to analyze how global value chains are inserted into localized agglomerations of production, or clusters (cf. Porter, 1996; Altenburg & Meyer-Stamer, 1999).

Both the studies of clusters and analyses of global value chains have received increasing attention from academics and politicians in recent years, in particular the most successful examples. In the words of Gary Gereffi: "one of the central tasks in fashioning national development strategies is to determine how to plug into transnational production systems in a way that allows nations to increase their productivity and international competitiveness while generating a higher standard of living for the local population" (Gereffi, 1996; p. 79). It is obvious that to many public officials, FDI represented one of the most important instruments for regional development since it can generate employment, it can encourage export manufacturing and it can create opportunities for local firms to innovate and upgrade knowledge.

However, not all countries, regions or social groups manage to benefit from the increased global economic integration. During the past decade, several authors with a more institutionalist approach have argued--on the basis of different lessons from the "Asian Tigers"--that in order for the process of economic restructuring to be successful, not less state intervention in the economy is necessary, but rather a different kind of state intervention (cf. Wade, 1990; Gwynne & Kay, 2003). According to this approach, the state still has an important role in providing incentives for investment, for example in terms of industrial infrastructure, but also in the accumulation of human capital, taking care of key areas such as to ensure high quality services in education and health, which--by improving the living conditions of the population--enhances the productive capacities of countries and regions. This emphasizes that there are potential benefits of becoming integrated into the world market, but only when attention is paid to the endogenous process of development, or in other words, when the domestic institutions and complementary policies are appropriate (cf. Dicken, 2007; Rodrik, 1997).

Methodology

In order to reach a fuller understanding of the impact of free trade on regional development, this study goes beyond the exclusive focus on the economic behavior of firms, common in the analysis of global value chains and clusters, and places developments in a broader socio-economic and historical perspective. The specific local conditions and practices of different actors play an important role in explaining the different outcomes, both quantitatively and qualitatively. For comparative reasons, examples that failed to successfully link up with the world economy are also included here. Analyses of failures can often offer insights that are just as valuable--or more--than success stories. The outcomes of this study are based on statistics and semi-structured interviews with senior officials, (former) politicians, influential entrepreneurs and (former) union leaders during several periods of fieldwork in the different sub-regions of Coahuila.

Coahuila before NAFTA

Bordering the United States (Texas) for more than 500 kilometers, the development strategy of the political elite of Coahuila since the mid-1970s was aimed at creating favorable conditions for attracting foreign investment. Until the 1990s, this strategy was not as successful as it was in other border states, especially because of Coahuila's peripheral location, its lack of a modern urban-industrial infrastructure and its low population density. However, since the start of NAFTA Coahuila was radically transformed, becoming one of Mexico's most dynamic states in terms of export activities, mainly due to a substantial increase in FDI.

The administration of Rogelio Montemayor Seguy, governor of Coahuila from 1993 to 1999, began only a month before the start of NAFTA. Trained in the United States in the neoclassical economic tradition, his development plan completely aimed at attracting new foreign investment under NAFTA, with the objective of creating new jobs, stimulating export manufacturing, and improving the learning of domestic firms through new technologies. Under the influence of the cluster theory of Michael Porter (1996), the main strategy of the Montemayor administration was to transform the existing sub-regional diversity within Coahuila into comparative advantages.

On the basis of socioeconomic characteristics, one can distinguish five sub-regions within the state of Coahuila: the Border region, the Carbonifera, the Center region (here including the Desert region), the Southeast region and the Laguna (Figure 1). According to the development plan of Montemayor, each sub-region of Coahuila was to specialize in the economic activity for which it already provided the most favorable circumstances; generally depending on one or two dominant companies (Montemayor, 1994). In the 1990s, the state of Coahuila offered comparative advantages in two out of the three industries that had demonstrated to have good opportunities for entering the US market in the decade before: the automotive industry and...

To continue reading

FREE SIGN UP