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    Rio Grande Guardian > Border Business > FEATURE
checkPerryman: The Economic Cost of Deployment
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Last Updated: 11 September 2014
By M. Ray Perryman
[M.
M. Ray Perryman
WACO, September 11 - In July, National Guard troops were deployed to the US-Mexico border by Texas Governor Rick Perry in order to reinforce ongoing efforts by the Texas Department of Public Safety to combat criminal activity in the region.

While troops have been sent to the area on various occasions in the past, the deployment has raised concern among some area residents and community leaders who fear that it could take a toll on the regional economy.

Local officials also question the efficacy of this measure given the limited authority accorded to the National Guard for this purpose. If the deployment increases feelings of uncertainty about the area’s stability, for example, it could discourage business investment, tourism, and other desirable economic activity. Moreover, the presence of troops has historically impacted shoppers and employees in a variety of sectors, discouraging them from full participation in their normal activities.

In order to provide a perspective on the potential economic effects of the presence of the National Guard troops, we recently analyzed the historic patterns in the regional economy during prior periods when troops were sent to the area and found that, even after adjusting for myriad other factors, the regional economy tends to be adversely affected during periods of deployment.

To measure the economic effects of the current deployment, we first established a baseline for comparison by comparing the performance of the Lower Rio Grande Valley economy during two prior deployments (in 2006-2008 and 2010) with performance in other periods before and after the deployments. We first accounted for various external factors, then used our Texas Econometric Model for simulations both with and without the deployment.

We found that during periods when troops are deployed, economic performance is significantly worse. Total losses in business activity stemming from this weaker performance include more than $541.9 million in gross product in the Lower Rio Grande Valley each year as well as 7,830 jobs. For Texas as a whole (including losses within the Lower Rio Grande Valley), costs were found to be $650.0 million in annual gross product and 8,680 jobs. These amounts represent approximately 2.5 percent of total local activity.

As noted, these results are based on an analysis designed to isolate the impact of the deployments from other causes of variation in economic growth patterns. External factors that would influence absolute performance were accounted for by evaluating economic performance in the Lower Rio Grande Valley relative to overall state and national performance in each period on an industrial basis. Because of the proximity of the area to Mexico and its dependence on border trade, production, and commerce, performance was also adjusted for fluctuations in the exchange rate between the Mexican Peso and the US Dollar, with appropriate consideration of the relevant elasticities of demand. The relative size and anticipated duration of the current deployment was also considered.

The simulation assumed a one-year deployment period. It should be noted that, because this methodology is based on actual data from prior deployments, the measured impacts are determined on a "net" basis, meaning that they fully account for any offsetting benefits associated with the deployment. As an element of conservatism in the analysis, the impacts from the less costly of the two prior deployments were incorporated, thus understating the potential effects.

If historical patterns hold true, deploying National Guard troops to the US-Mexico border will lead to significant losses in business activity in the Lower Rio Grande Valley. While border security is an important issue, it should be recognized that economic performance is dampened during times when troops are deployed. Less intrusive and more effective measures are worthy of consideration.

M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.

Write M. Ray Perryman


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