The Enclave Economy Foreign Investment and Sustainable Development in Mexico’s Silicon Valley Kevin P. Gallagher Boston University Lyuba Zarsky Monterey Institute for International Studies Global Development and Environment Institute Tufts University
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The Enclave Economy Foreign Investment and Sustainable Development in Mexicos Silicon Valley Kevin P. Gallagher Boston University Lyuba Zarsky Monterey.
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The Enclave Economy
Foreign Investment and Sustainable Development in Mexico’s Silicon Valley
Kevin P. GallagherBoston University
Lyuba ZarskyMonterey Institute for International Studies
Global Development and Environment InstituteTufts University
Sustainable Industrial Development
• Economic: – Increasing the endogenous capacities of Mexican
firms and workers to learn, innovate and produce for domestic and/or global markets;
• Social:– Creating jobs with labor rights, especially for the
poor and middle classes;
• Environmental: – Mitigating the environmental and health impacts of
industrial growth.
The Promise of Investment Liberalization
• Attract FDI– More stable form of foreign exchange– Employment, tax revenue
• Productivity spillovers– Backward linkages– Human capital spillovers– Forward linkages
• Environmental Spillovers– Clean technology and management transfer– Environmental “spillovers” to domestic firms– Leapfrogging spurred by frontier environmental policy
Source: Cadena Productiva de la Electronica (CADELEC), 2007
Electronics Clusters in Mexico
Source: Gallagher and Zarsky, 2007
Why firms came
• Proximity to U.S.• Markets (hi-tech boom)• NAFTA • PITEX and Maquila• Exchange rate• Infrastructure• Wages• Pollution haven?
Why firms left• Slowdown in
U.S. demand• China’s
accession to WTO
• Overvaluation of the peso (wages)
• Lack of local productive capacities
• Lack of domestic and regional markets
Investment Employment Destination ($US millions)
Hard Disk Drives 108 4,250 ChinaComponents 30 1,200 ChinaCommunication Systems n.a. 3,720 ChinaCell Phones n.a. 400 China
24 1,493 China25 1,095 China
Semiconductors 200 2,100 PhillipinesElectronic Cards 24 1,049 China
70 925 MalaysiaPrinters 12 1,900 ChinaPrinting Systems 3 295 ChinaElectronic Equipment 3 300 ChinaTelecommunications 15 2,500 China
Total 514 21,227
High Tech Project Losses in Jalisco, 2001-2003
Source: Dussel Peters, Enrique. 2005. Economic Opportunities and Challenges posed by China for Mexico and Central America: DIE (German Development Institute).
Source: United Nations Commodity Trade Statistics, 2006
Country Share Country Share Country Share Country Share Country Share Country Share1 USA 27.0% USA 25.3% USA 22.3% USA 18.1% USA 18.7% USA 12.6%2 Fmr Fed. Rep. of Germany14.1% J apan 17.3% J apan 16.1% J apan 15.2% J apan 10.8% China 12.4%3 J apan 11.8%Fmr Fed. Rep. of Germany11.5%Fmr Fed. Rep. of Germany11.6% Germany 8.8% Germany 7.4% Germany 9.2%4 United Kingdom 10.5% United Kingdom 8.5% United Kingdom 7.5% Singapore 6.9% Singapore 5.8% J apan 6.9%5 France 7.7% France 6.8% France 6.6% United Kingdom 6.8% United Kingdom 5.5% China, Hong Kong SAR 5.9%6 Netherlands 4.1% Italy 3.6% Singapore 4.0% France 5.8% France 5.0% Singapore 5.6%7 Italy 3.8% Netherlands 3.3% Netherlands 3.6% China, Hong Kong SAR 4.2% China, Hong Kong SAR 4.5% Rep. of Korea 4.9%8 Switzerland 3.0% Canada 3.0% Italy 3.5% Rep. of Korea 4.2% Rep. of Korea 4.4% France 4.5%9 Canada 2.5% China, Hong Kong SAR 2.3% China, Hong Kong SAR 2.9% Netherlands 3.5% China 4.0% United Kingdom 4.5%10 Belgium-Luxembourg 2.3% Singapore 2.2% Rep. of Korea 2.8% Malaysia 3.3% Malaysia 3.7% Netherlands 4.1%11 Sweden 2.1% Switzerland 2.2% Switzerland 2.2% Italy 2.5% Netherlands 3.7% Malaysia 3.0%12 Singapore 1.7% Sweden 1.9% Canada 2.2% China 2.1% Mexico 3.4% Belgium 2.7%13 China, Hong Kong SAR 1.3% Rep. of Korea 1.8% Sweden 1.8% Canada 2.1% Canada 2.5% Mexico 2.6%14 Rep. of Korea 1.1% Belgium-Luxembourg 1.6% Belgium-Luxembourg 1.6% Mexico 1.8% Ireland 2.3% Ireland 2.1%15 Poland 1.0% Ireland 1.3% Malaysia 1.6% Switzerland 1.8% Italy 2.0% Italy 1.9%16 Austria 0.9% Malaysia 1.1% Ireland 1.4% Sweden 1.7% Philippines 1.8% Switzerland 1.8%17 Denmark 0.9% Denmark 0.8% Austria 1.1% Ireland 1.6% Belgium 1.5% Canada 1.6%18 Malaysia 0.8% Austria 0.7% Spain 1.0% Thailand 1.5% Sweden 1.5% Thailand 1.4%19 Ireland 0.7% Spain 0.7% Denmark 0.9% Belgium-Luxembourg 1.5% Thailand 1.5% Philippines 1.3%20 Spain 0.6% Poland 0.5% Thailand 0.7% Spain 0.9% Switzerland 1.4% Sweden 1.3%21 Australia 0.4% Israel 0.5% China 0.7% Finland 0.8% Finland 1.0% Spain 1.1%22 Finland 0.3% Czechoslovakia 0.4% Finland 0.5% Denmark 0.7% Spain 0.8% Hungary 0.9%23 Norway 0.3% Brazil 0.4% Israel 0.4% Austria 0.6% Israel 0.7% Finland 0.9%24 Portugal 0.2% Finland 0.4% Australia 0.3% Australia 0.4% Denmark 0.6% Denmark 0.9%25 Hungary 0.2% Norway 0.3% Norway 0.3% Israel 0.4% Hungary 0.6% Austria 0.7%26 India 0.1% Australia 0.3% Brazil 0.3% Philippines 0.3% Austria 0.6% Czech Rep. 0.6%27 Argentina 0.1% Portugal 0.2% Czechoslovakia 0.3% Norway 0.2% Indonesia 0.5% Brazil 0.5%28So. African Customs Union 0.1% Hungary 0.2% Fmr Yugoslavia 0.2% Czech Rep. 0.2% Brazil 0.5% Israel 0.4%29 Indonesia 0.1% China 0.1% Mexico 0.2% Indonesia 0.2% Australia 0.3% Indonesia 0.4%30 Philippines 0.1% Philippines 0.1% Poland 0.2% Brazil 0.2% Czech Rep. 0.3% Poland 0.3%… … …… … …99 China 0.0%
Cumex Electronics 50/50 Mex-US CM of PCBsMitel 51/49 Mex-Canada Telephone ComponentsPhoenix International 50/50 Mex-US Plastic InjectionEncitel 100 Mex CM of PCBsInfo Spacio 100 Mex CM of printersLogix Computers 100 Mex Design and manufacturer of PCsMexel 100 Mex CM of PCBsUnisys 100 Mex CM of computers and peripheralsElectron 100 Mex Design and manufacturer of PCsScale Computers 100 Mex Design and manufacturer of PCsAdvanced Electronics 100 Mex Design and Manufacturer of PCBsCompuworld 100 Mex CM of hard drivesMicrotron 100 Mex Buffers and Carton Packages
Source: Gallagher and Zarsky 2007
IT Plant Closings--Whole or Partly Owned Mexican Firms
Activity
Backward Linkages• 98 percent of inputs are
imported• 80 percent decline in
local suppliers from 1985
• 97 percent of all investment between 1994 and 2002 was foreign