BROWNSVILLE, March 7 - A top border economist with the Federal Reserve Bank of Dallas says he is largely optimistic about the Texas-Mexico border economy, thanks in part to a spillover in economic activity from Mexico.
“Mexico is continuing to play a significant role in the economic recovery along the Texas-Mexico border,” El Paso-based Roberto A. Coronado told the Guardian, after giving a power –point presentation full of facts and analysis to members of the Asociación de Empresarios Mexicanos at a breakfast gathering at Rancho Viejo.
“Mexico is having some nice spillover effects in border cities such as Brownsville and McAllen,” Coronado said. “The other thing is the growth in the automotive market and automotive sales in the United States, which has spurred activity in Mexico and in the maquilas in particular. This, in turn, translates into job creation in cities like Brownsville and McAllen.”
Coronado said his organization’s analysis shows that Texas border cities are the ones who have benefited the most from the maquiladora industry; much more than California and Arizona. “And within Texas, the city that benefits the most from the maquilas is McAllen, followed by El Paso, then Brownsville and Laredo,” Coronado said.
Coronado said his organization’s analysis shows that a ten percent increase in economic activity in maquilas in Reynosa leads to a six percent growth in employment in McAllen. This translates in one in three new jobs in McAllen over the last 20 years being caused by maquila activity, he said.
Coronado said a ten percent increase in economic activity in maquilas in Matamoros leads to a three percent growth in employment in Brownsville. This translates in one in ten new jobs in Brownsville over the last 20 years being caused by maquila activity, he said.
Coronado said a ten percent increase in economic activity in maquilas in Nuevo Laredo leads to a one percent growth in employment in Laredo. This translates in one in five new jobs in Laredo over the last 20 years being caused by maquila activity, he said.
Coronado said a ten percent increase in economic activity in maquilas in Juarez leads to a three percent growth in employment in El Paso. This translates in one in four new jobs in El Paso over the last 20 years being caused by maquila activity, he said.
Coronado said it has been fascinating to watch the transformation of the maquila industry over the past forty years.
“When we look at maquilas and when they were established 30, 40, 45 years ago, it was under the twin plant concept. This meant having an operation on both sides of the border, both of them doing manufacturing. On the U.S. side was the capital intensive manufacturing and on the Mexican side was the labor intensive part,” Coronado pointed out.
“Over time, the bulk of the manufacturing has shifted to the Mexican side. We do some manufacturing on the U.S. side but not to the extent we did. That is why we see a contraction in the manufacturing sector. However, border cities continue to be tied to the maquilas, not necessarily through manufacturing but through providing services.”
Coronado said services in the U.S. that aid the maquilas include transportation, warehousing, logistics, customs brokers, IT, HR, finance, insurance, and real estate.
“We continue to be tied to maquilas but we do not do a lot of manufacturing. It is mostly the service side of the economy. That is why we are seeing the gap in per capita income closing. We are depending more and more on high paying jobs in the service side of the economy,” Coronado said.
That said, the transition has been long and slow, the economist explained.
“Many communities have gone through this. It has been a painful transition. Why painful? Because many of the manufacturing workers were displaced. It is very difficult to turn these workers overnight from a manufacturing worker into a physician. Or from a manufacturing worker into a CPA. It does not happen overnight. It is a painful, slow transition,” Coronado said.
“Nonetheless, the border has weathered and has engaged in that transition and we have seen the benefits when we look at the per capita income, for example.”
Coronado’s speech and presentation was made entirely in Spanish. He joked that those in the audience would likely want to hear about economic activity in Brownsville rather than McAllen. “Overall, yes, I am optimistic about the border economy,” Coronado said. “The recovery along the border continues and has been continuing for the last two and a half or three years. However, the recovery has been uneven. It matters where you sit on the border how strong or weak the recovery has been.”
Coronado said it is a boost to the border region to have the peso continuing to appreciate in value. “It has been appreciating for six to eight months now. This has been driving cross-border retail. There are a lot of things happening along the border and when we look at per capita income along the border, the gap has been closing with the national level. It is still way below the national level but nonetheless the gap has been closing. This is the good news going forward,” Coronado said.
Coronado finished his power-point presentation with his prognostications. He said the United States is expected to grow, including, crucially for the border region, the automobile industry. The Mexican economy should also grow, he said, and thus, as a result, trade between the U.S. and Mexico should increase, to the obvious benefit of the border region.
“The maquilas are likely to continue to grow. Cross border retail should grow. The peso is appreciating against the dollar and should stimulate some of this cross-border shopping. Most of the signs I see out there are positive for the border,” Coronado said.
“Having said that, I do not want to be overly optimistic. You have to look at the downside risks. It could be sequestration by the government; the bulk is due to hit government and defense. We rely heavily on Homeland Security, Border Patrol jobs, Customs jobs,” Coronado said.
“Also, the instability in Europe has not been resolved. It is moving in the right direction but it has not resolved. This brings volatility in foreign exchange markets. This brings noise to the border region. For us, a stable exchange rate is better than a noisy one because with a noisy one you are not sure if the value of the peso will change. We prefer a smooth exchange rate.”
Coronado said there are a number of challenges ahead. “It will be interesting to see how the border economy weathers those challenges going forward,” he said.
Coronado said economists are also waiting to see if the downturn in manufacturing in the U.S is temporary or more permanent. And, he said, violence in Mexico is still there. “We are still not sure how this will go,” he said.