ECONOMIC INTEGRATION AND INDUSTRY LOCATION: Regional Economic Growth in Mexico Before and After Trade Reform 2

The findings suggest that access to foreign markets influences industry location. Prior to trade reform, there is zero correlation between regional industry employment growth and distance to the United States. But after trade reform, the correlation is strongly negative. As Table 3 suggests, the locus of manufacturing activity in Mexico is shifting towards the U.S. border. In both time periods, there is a strong positive correlation between regional employment growth and the initial concentration of activity in upstream and downstream industries, which is consistent with the presence of backward-forward linkages in economic growth. An industry is likely to grow more rapidly when it is located near its buyers and suppliers. Finally, consistent with Glaeser et al. (1992) (but not with Henderson, Kuncoro, and Turner, 1995), I find no evidence of within-industry agglomeration economies. There is a negative correlation between employment growth and within-industry agglomeration before trade reform and a zero correlation after trade reform. comments

The empirical results help put in context the overall spatial shift in manufacturing activity that is occurring in Mexico. Since trade reform, the closed-economy manufacturing belt around Mexico City has begun to break apart. New industrial centers are forming in northern Mexico, where firms have low-cost access to the U.S. market. Accompanying the relocation of industry is a shift in the composition of Mexico’s industry centers. The importance of backward-forward linkages and the lack of within-industry agglomeration economies suggests that broadly specialized regional industrial centers are replacing the dense concentrations of industries around Mexico City that dominated the Mexican economic landscape under ISI. The shift involves both a spatial decentralization of employment, as industry moves from Mexico City to one of several Mexican states on the U.S. border, and a reduction in regional specialization, as multiple manufacturing activities expand in the new industrial sites. NAFTA, by further lowering trade barriers between Mexico and the United States, is likely to reinforce these movements.