Automotive global value chains in Mexico: a mirage of development?

ABSTRACT

International monetary organisations argue the ‘developing countries’ should foster linkages to the world economy as a means to overcome backwardness. In this article we refute the narrative that Mexico has experienced industrial upgrading. Rather, industrial growth in Mexico over the last 40 years has been shaped by neoliberal economic policies which have turned the Mexican economy into an export-led manufacturing platform designed to supply the North American market, sustained by a precarious labour market. As a result, Mexico occupies the most labour-intensive and low value-added segments of regional production chains. To make this argument, we perform an in-depth analysis of the Mexican automotive industry, demonstrating that instead of being an engine for domestic industrial development, the auto industry has become a dominant economic sector through productive hyper-specialisation concentrated in the northern Mexican border states, a reliance on transnational capital, particularly from the United States, a disconnect with domestic markets, and the super-exploitation of labour.     

Industrial Restructuring in Romania from a Bilateral Trade Perspective: Manufacturing Exports to the EU from 1995 to 2006

The article presents an analysis of changes in the volume, structure and quality of Romanian manufacturing exports to the EU since 1995 in order to determine the nature and extent of industrial restructuring in Romania. We argue that the observed five-fold increase in the volume of manufactured exports from Romania to the EU over more than a decade-long period, although it is a positive development, still hides a persistent reliance upon labour-intensive and low value-added products. Only towards the end of the examined period have Romania's export patterns begun to resemble those of the more advanced Central and East European countries, reflecting the more important role played by intra-industry exports of differentiated products, the gradual transition from labour intensive, low valued-added exports to more technology-intensive ones and the improvement in product quality.     

Missing Links: Foreign Investment and Industrial Development in Costa Rica and Mexico

This article offers an analytical framework for understanding the missing links between FDI and development, and applies it to the high technology sectors of Costa Rica and Mexico, the two countries in Latin America that have attracted the highest percentage of FDI in manufacturing. Since the advancement of knowledge-based assets in this sector is at the heart of structural change and development, we focus specifically on the conditions that enable or prevent positive knowledge spillovers from FDI. We identify two main reasons for the missing links between high-tech FDI and the development of indigenous knowledge-based assets in Costa Rica and Mexico. First, their governments did not have a coherent strategy, which would have spelled out the needed government policies to advance national capabilities, overcome market failures, and support the integration of national producers into TNCs’ global production networks. Second, there were limitations on the spillover potential from FDI. In Costa Rica and Mexico, technology or scale requirements for inputs made it difficult for large TNCs to source domestically beyond simple inputs like packaging materials. In Mexico, fundamental changes in the organization of global production chains in the computer industry led TNCs to rely on their global contract manufacturers rather than work with potential Mexican input suppliers.     

The Benefits of Globalization: Why More for South Korea than Mexico?

ABSTRACT

This article examines the arguments for globalization and analyzes Mexico’s “maquiladora experience,” which indicates that globalization alone does not bring about a higher standard of living. The primary reason that Mexico has not benefitted as much as might be expected from globalization has to do with the poor quality of its governance, referring especially to public administration. This assertion is supported by a comparison of Mexico and South Korea. In explaining South Korea’s greater success, Political Elasticity (PE) theory is introduced, suggesting that political power needs to become elastic in two meanings of this word: a “rubber band” meaning (referring to the ability of leaders to delegate power without losing or diminishing it) and “a balloon meaning” (having to do with the ability of leaders to reliably influence the behavior of the general public). Based upon studies of rural and industrial development, South Korea is shown to be more politically elastic than Mexico. This article concludes by examining the lessons that Mexico can learn from Korea’s experience.     

Violent Narco-Cartels or US Hegemony? The political economy of the ‘war on drugs’ in Mexico

Mainstream analysis and commentary on drug trafficking and related violence in Mexico focuses overwhelmingly on the narco-cartels as sources of the problem and presents the US as a well intentioned player helping to conduct a ‘war on drugs’ out of concern for addiction, crime and violence. This article offers an alternative interpretation, grounded in critical political economy, showing that in addition to fuelling the narcotics industry in Mexico thanks to its large drug consumption and loose firearms regulations, the US shares much responsibility for its expansion thanks to its record of support for some of the main players in the drugs trade, such as the Mexican government and military, and by implementing neoliberal reforms that have increased the size of the narcotics industry. The war on drugs has served as a pretext to intervene in Mexican affairs and to protect US hegemonic projects such as nafta, rather than as a genuine attack on drug problems. In particular, the drugs war has been used repeatedly to repress dissent and popular opposition to neoliberal policies in Mexico. Finally, US banks have increased their profits by laundering drug money from Mexico and elsewhere; the failure to implement tighter regulations testifies to the power of the financial community in the US.     

Pakistan's industrial families: The extent,causes, and effects of their economic power

There has been much interest lately in the phenomenon of industrial growth in Pakistan and in the leading industrial families who were in the centre of that growth. [G. F. Papanek, 1967; G. F. Papanek, 1971; H. Papanek, 1972]. There have been few efforts, however to measure directly the importance of these families and the causes and effects of their economic power. This article will attempt to provide some of these measures.

Section I estimates the overall concentration in the manufacturing sector in Pakistan and provides a few international comparisons. Section II will provide estimates of the more traditional concentration by industry, along with estimates of the leading families’ roles in those industries. Section III discusses the origins of both kinds of concentration. And Section IV will analyze the consequences ‐economic and non‐economic ‐ of this concentration. The data in this article relate mostly to 1968.¹     

Local technological capability and productivity spillovers from FDI in the Uruguayan manufacturing sector

This article examines intra‐industry spillovers from FDI in Uruguayan manufacturing plants in 1988, to determine whether differences in the technology gap between locally‐owned plants and foreign affiliates have any impact on the relation between local productivity and foreign presence. We find a positive and statistically significant spillover effect only in a sub‐sample of locally‐owned plants with moderate technology gaps vis‐à‐vis foreign firms. Our interpretation is that there are firm‐specific differences in the ability to absorb spillovers, and that these may explain some of the contradictory findings of earlier spillover studies.     

FDI and the Dynamics of Productivity in Indonesian Manufacturing

This article examines productivity growth in the Indonesian manufacturing sector. We use a longitudinal data set to calculate the effects on aggregate manufacturing productivity growth from improvements within establishments, from reallocation of market shares, and from the turnover of plants. Productivity growth is mainly explained by reallocation of market shares and from turnover of plants. Moreover, the foreign contribution to productivity growth is unclear and depends on the choice of productivity measure. A cautious conclusion is that the foreign contribution is about the same size as the foreign share of manufacturing output. Finally, there is a difference in the causes of productivity growth between foreign and domestic plants.     

Where is the ‘Plus’ in ‘Credit-Plus’? The Case of Chiapas,Mexico

Abstract

It has become common to try and increase the effectiveness of microfinance programmes by adding supplementary services to the financial product. However, the added value accruing from this ‘credit-plus’ approach has been little analysed. We hypothesise that the extent of added value from credit-plus depends on the ability of the credit supplier to cultivate trust, or social capital, amongst clients. Applying difference-in-difference estimation, we exploit a natural experiment of two ‘credit-plus’ programmes in Mexico. The findings suggest that credit-plus is not universally effective, but that it is at its most effective, especially with low-income groups, where ‘bonding’ (within-group) social capital exists.     

Market structure and performance of US multinationals in Brazil and Mexico

This paper presents the results of a regression analysis of the market structure determinants of profitability among the Brazilian and Mexican manufacturing affiliates of US multinational corporations. The study employs data on 206 firms derived from a special survey specifically designed to obtain detailed information on their market structure environments and performance characteristics. Our estimates confirm that seller concentration, product differentiation, and relative market share are three sources of market power of these firms. Despite the many economic and noneconomic differences between Brazil and Mexico, there are no systematic differences between the two in their underlying structure‐performance relationships.     

Racing to the bottom: international trade without a social clause

Linking trade concessions to compliance with internationally recognised labour standards is referred to as a ‘social clause’. The social clause is usually depicted as causing division between the (rich) global North and the less-industrialised global South. This article shows, however, that there is diversity of opinion among the labour movements of the global South and that contemporary labour-intensive manufacturing pits countries of the South against one another. The article raises the possibility of a race to the bottom in labour standards, where workers cannot enjoy the fruits of growth because their employers and governments hold on to the competitive advantage of cheap labour. Consider competition between China and Mexico for the North American apparel market: despite enormous employment growth apparel workers have not enjoyed wage growth and their conditions are often appalling. The race to the bottom can be prevented by South–South agreement to honour labour standards.     

Inverse Productivity or Inverse Efficiency? Evidence from Mexico

Using a unique panel data set from rural Mexico, we find strong evidence of a negative relationship between farm size and both productivity and technical efficiency: large farms not only have a lower value of output per hectare than small farms, they also produce further from the efficiency frontier. Our findings suggest that, in spite of the ongoing transformation of agricultural supply chains and economists’ recommendations for small farmers to exit crop production, there may be sustained advantages for smallholder farms. Our analysis offers new insights into inverse-farm size relationship, the productivity–efficiency relationship, and the use of stochastic frontier techniques.     

Fixed capital stock depreciation in developing countries: Some evidence from firm level data

Abstract

Previous growth accounting studies suggest severe capital underutilisation and mismeasurement of the stocks of capital in some developing countries. Using the firm level data sets from the World Bank surveys, this paper estimates the economic depreciation rates of fixed capital stocks in the manufacturing industries of seven developing countries. The findings indicate that the stocks of fixed capital may depreciate at higher rates in these countries, as compared with the normal rates usually assumed for advanced industrial countries. This study also discusses the economic and social forces that may influence the incentive to maintain capital appropriately and the implications of high depreciation for the total factor productivity (TFP) growth estimates and volatility of capital accumulation.     

Growth,governance and corruption in Bangladesh: a re-assessment

This paper revisits Bangladesh’s ‘double paradox’ – sustained macroeconomic growth despite the poor state of governance and a high level of corruption – by critically reviewing trends in governance and corruption indicators during 1990–2017 vis-à-vis other South Asian countries. In addition, we draw upon data from a purposefully designed survey of manufacturing firms to assess the state of economic governance in the export-oriented ready-made garments (RMG) sector, the country’s main source of foreign exchange and driver of economic growth. Consistent with the country’s poor ranking in a host of indicators of investment climate and corruption perception, in-depth interviews of RMG factory owners confirm the high cost of doing business in various forms. We also find no evidence of growth-mediated improvements in indicators of governance. On the contrary, our review of print media reports suggests a growing governance deficit in the country’s financial sector. We conclude by discussing the implications of our findings for the country’s future growth as well as performance of the RMG sector.     

The political economy of Indian planning

Peruvian statistics were examined to see if construction remained labour‐intensive during 1955–67. Data on output, employment, capital, and materials consumption were either lacking or had defects that made a direct comparison of trends impossible. But conclusions could be drawn from relative price and wage trends. If materials and capital had not been substituted for labour, average construction costs would have risen substantially more than they did. Our estimate was that by 1967 they would have been 25 per cent higher.

Evidence from a sample of firms, however, suggested that adoption of labour‐saving techniques cannot be tied simply to changes in wages compared with other costs. All eleven innovations studied, it is true, were markedly labour‐saving; but the rate of adoption did not closely follow wage changes. Adoption came most often during those less tense years when builders were neither overstrained with orders nor lacking credit and clients. One must conclude that both rising wages and innovations can limit employment expansion in relatively poor countries.

Since both agriculture and manufacturing have been unable to absorb the growing labour force of poor countries, economists have turned their attention to other sectors for supplementary employment expansion. One of these is construction. The construction sector creates not only jobs but builds capital goods with a desirable low import content. In association with carefully structured financial institutions, it may even generate savings. How much employment a given expansion of construction will provide depends on the production functions of the sector: their slopes and their potential shifts. One must find the changes in labour productivity that go with likely changes in volume, capital accumulation, trends in material supplies, and alternate technologies.

All these questions will get imprecise answers without good statistics on output, labour, capital, and materials, both unit prices and volume. If output varies in composition and in the relative quality of components, problems of weighting and aggregating arise. Because of the sector's ? instability and footloose nature, data on construction remain inferior compared with other sectors even in the most advanced and statistics‐rich countries. Can one make anything of the sorts of data available in poor countries where the sector must play its most crucial role?

In this article, using rather limited data, we note with considerable alarm that steady labour intensity and corresponding employment expansion cannot be taken for granted. Where daily wages are but a fraction of hourly American wages, and where interest rates are a multiple of American rates, the more lavish use of materials and machinery compared with labour can nevertheless begin early.

Peru is the country selected for our study. During 1955–67 Peru had a relatively high national output growth rate of 5.6 per cent together with a moderate rate of inflation of about 9 per cent. Except for the devaluation years of 1958 and 1967, flourishing exports of fishmeal, copper, cotton, and sugar helped carry this rate of growth. Lima was one of the continent's fastest‐growing cities in population and building, particularly in squatter barriadas. But in the 1960s commercial conduction also grew at more than a 15 per cent compound rate, measured in square metres built, according to some estimates.1 During 1964–68, construction had high priority under President Fernando Belaunde, a professional architect. More U.S. foreign aid for housing (direct and guaranteed private loans) went to Peru in absolute terms during this period than to any other country. We shall analyse the consequences by examining (1) trends in relative costs, (2) relative output and import trends, and (3) data about receptivity to innovations in a sample of firms.     

An analysis of mergers and acquisitions in Mexico: 1985-1996

The recent devaluation of the Mexican peso and the resulting “Mexican syndrome” has opened up a world of opportunities for foreign investors. Mexico with all of its economic problems is still seen by many investors as a sound economy with the necessary ingredients to stage a strong comeback. Economic crises often lead to an escalation of corporate restructuring such as mergers, acquisitions and joint-ventures, both, domestic as well as cross-border. This paper examines the M&A trends in Mexico over the period 1985-1996.

The results indicate that cross-border M&A deals have increased during the nineties, with Europe being a major participant since 1995. As far as the industrial sectors are concerned, the study shows that very few M&A deals have been completed in the construction, transportation, and petroleum industries. The managers of multinational firms should take note of this and public administrators should attempt to attract foreign capital towards these sectors. A sound distribution infrastructure is very essential in order to attract much needed foreign capital to the country.

The study also finds that relatively few cross-border M&As have been completed with state-owned enterprises. With the aggressive reforms of the Zedillo government and the privatization of the transportation, electricity, and petroleum sectors, there is bound to be an increase in competition and opportunities for investments in these sectors.

Finally, managers of multinational corporations who are targeting Mexico, should be fully aware of the differences in culture and ownership status of target firms. This study shows that a large number of the deals have been done with privately-owned firms, and would therefore need good negotiation skills.     

‘No toques mi pelo’ (don’t touch my hair): decoding Afro-Cuban identity politics through hair

ABSTRACT

People across the African Diaspora have developed a complex socio-visual-language system of hair as a means of self-expression; however, the decades of economic sanctions in Cuba generated a unique political dynamic that has shaped concepts of self-image and cultural expressions. Sixteen Afro-Cuban women were interviewed about the cultural significance of their hair using The Guided Hair Autobiography methodology. Participant themes included aesthetic pride and confidence, hair bullying and embarrassment, and hair damage and distress. A Cuban cultural critique underlines how Afro-Cuban women have been socialized to have a bias towards straightened long hair over tightly coiled hair textures. These findings suggest that despite the ‘raceless’ political revolutionary spirit infused into Cuban cultural ideology, people of African descent process racial politics and identity through hair.     

Citizen involvement in public policy: Does it matter how much is at stake?

Public administrations increasingly try to find new ways to involve citizens in policy-making. However, many democratic innovations draw in only a fraction of the public. Why? I hypothesize that we observe such low participation rates because there is often not enough at stake for citizens. I test this with a preregistered survey experiment on citizens' intentions to participate in participatory budgets in the Netherlands. I fielded the experiment among a sample of citizens that had just experienced a participatory budget (N = 225) and among a population-based sample (N = 1369). I operationalized the stakes as the amount of public money about which citizens can decide. The results show that more money generally does not increase citizens' intention to participate. Supplementary analyses confirm the experimental findings and provide reasons how and why the stakes involved (do not) matter for citizens' involvement.     

A diplomatic failure: the Mexican role in the demise of the 1940 Reglamento Federal de Toxicomanías

Abstract

In 1940 Mexico implemented a new revolutionary strategy in its fight against drug trafficking and addiction with a policy that legalized the sale of morphine to opiate addicts. While this approach to drug addiction was not entirely new or unique, it was strongly opposed by the United States, which responded by declaring an embargo on narcotic shipments to Mexico. As a result, Mexico was forced to abandon the plan just a few months after it was implemented. Often seen as a moment when Mexico might have gone in a different, less prohibitionist drug-policy direction, this episode has been overwhelmingly interpreted as an early and striking example of U.S. drug-control imperialism in Latin America. While such interpretations are not incorrect, they have missed an equally critical element of the story—a series of catastrophic diplomatic failures on the Mexican side which undermined various opportunities Mexico had to salvage the policy in some form. The episode thus stands in contrast to more well-known diplomatic challenges during the period in which Mexico’s diplomats have been lauded for outmaneuvering their U.S. and European counterparts.