|EDINBURG, February 26 - The Rio Grande Valley benefits tremendously from maquiladora activity across the border, with McAllen benefiting the most, a new report states.
The report says a ten percent increase in maquiladora output in Reynosa leads to a nearly seven percent increase from overall non-farm employment in McAllen.
The report comes from Dr. Roberto Coronado, assistant vice president in charge and senior economist with the Federal Reserve Bank of Dallas, El Paso Branch, and Dr. Eduardo Saucedo, a lecturer in the Department of Economics and Finance at UTPA. Their findings are published in the latest Border Business Briefs publication published by the Center for Border Economic Studies at UT-Pan American.
Coronado and Saucedo say their research shows that maquiladoras have become “one of the main economic pillars” of the U.S.-Mexico border region. “Although tougher global economic environment driven mostly by fierce, low-wage competition has changed the scope and landscape of the industry over the years, maquiladoras continue driving the ever-increasing trade flows between Mexico and the Rio Grande Valley,” the report states.
Coronado and Saucedo go on to say that “given the importance of the maquiladora industry for border cities, it is no surprise that the Rio Grande Valley and northern Mexico exhibit lockstep economic performance” with “strong synchronization” between McAllen-Reynosa, and Brownsville-Matamoros.
“Our research findings indicate that the maquiladora industry remains a dominant force for the U.S.-Mexico border economy,” the report states. “The restructuring of the maquiladora industry since 2001, largely in response to low-wage Asian competition, has affected the industry’s job growth more than output growth. As jobs have shifted out from low-skill industries (i.e., textiles, apparels, and toys), into high-skill industries (i.e., electronics and autos), the result has been fewer but better-paying jobs. The resilience and growth of Mexican maquiladora are good news for neighboring U.S. border cities.”
The report goes on to say that while competition from Asia has “eroded to some extent maquiladora job growth,” the maquiladora industry has “been moving up the ladder in terms of increased output, higher wages, and improvements in productivity.”
Using data from 1990 to 2006, Coronado and Saucedo found that a ten percent increase in maquiladora production is associated with a 0.5 to 0.9 percent rise in U.S. border city jobs. However, the results indicate that the border average can be misleading, with big differences emerging from one city to the next. In addition, the authors say, empirical results show that post-2001 the U.S. border cities are less responsive to growth in maquiladora production. “However, when looking into specific sectors, we find that the U.S. border city employment in personal and business services sectors has become much more responsive post-2001. This, in turn, suggests that today, U.S. border cities predominantly supply business services to the maquiladora industry (i.e., transportation, finance, insurance, legal, and accounting to name a few sectors) rather than just manufactured parts components.”
The report goes on to say: “We find that the Rio Grande Valley benefits tremendously from maquiladora activity across the border. In particular, we find that McAllen is the U.S. border city that benefits the most from maquiladora activity. The interpretation of the numbers in the table is as follows: A ten percent increase in the maquiladora output in Reynosa and Matamoros leads to a nearly seven percent increase from overall non-farm employment in McAllen and a two percent in Brownsville respectively.”
“To sum up, the economic integration between the economy in the Rio Grande Valley and Mexico continues on the rise,” Coronado and Saucedo write. “While the maquiladora industry has restructured and evolved over the last several years, it continues shaping the Rio Grande Valley economy. As Texas and Mexico continue engaging in more trade, and the maquiladora industry remains growing the Rio Grande Valley should benefit in years to come.”
Click here to read the latest quarterly Border Business Briefs from UTPA’s Center for Border Economic Studies.