Economic Integration and Mexico’s Manufacturing Performance: Is Chinese Competition to Blame?...
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Transcript of Economic Integration and Mexico’s Manufacturing Performance: Is Chinese Competition to Blame?...
Economic Integration and Mexico’s Manufacturing Performance: Is Chinese Competition to Blame?
Ernesto López-Córdova, Inter-American Development Bank
2004 LAEBA Annual Conference
Beijing, China, 3-4 December 2004
The opinions expressed herein are those of the author and do not necessarily reflect the official position of the IDB or its member countries.
Questions
How has trade policy after NAFTA affected Mexico’s manufacturing sector?What additional factors affect the behavior of the sector?How do China and Mexico compare?
OverviewMexico’s trade policy since the 1990s: Distorting, favoring low-wage industriesProtection of low-wage jobs in less productive companies
Trade liberalization favors productivity
Instead of protectionism, consider policies that promote productivity growth and competitiveness
Trade Policy in the 1990s
Reduction of average tariffs However, tariff increases in ...
Labor intensive industriesTrade with low-wage countries
05
1015
Per
cent
1993 1994 1995 1996 1997 1998 1999 2000Year
North America World
Rest of the World
Source: Based on Mexico's Ministry of Economy data.
Mexican Average Manufacturing Tariffs
18.5
27.1
19.317.6
20.2
5.6
010
2030
Per
cent
Low income countries Middle income countries High income countries
1993 2000 1993 2000 1993 2000
Source: Based on Mexico's Ministry of Economy data.
By country income-level groupMexican Tariffs on Low-wage Industry Imports
Trade Policy in the 1990s
NAFTAPreferential access to the US marketSpecially in low-wage industries
More recently, erosion of NAFTA preferences
02
46
810
Per
cent
1990 1992 1994 1996 1998 2000
China México
Source: Based on U.S. Customs data.
US Average Manufacturing Tariffs
05
10
1 151 301 451 1 151 301 451
1990 2000
Per
cent
Ranked from lowest to highest hourly-wage industrySource: Based on U.S. Customs and NBER-CES data.
(Difference in applied US tariffs)Mexico's Preferential Tariff Margin vis-a-vis China
02
46
Pe
rce
nt
1990 1992 1994 1996 1998 2000
95% conf idence interv al ChinaMexico Dif f erence
Source: López-Córdova (2003), 'Economic Integration and Manufacturing Performance in Mexico'.
Average TariffsU.S. Manufacturing Imports from China and Mexico
Implications
Jobs and output growth in low-wage industriesNAFTA favors export in those industries
Specialization in industries without comparative advantage vis-a-vis China
34.0 28.4 18.9 18.7
31.0 27.3 20.2 21.5
26.9 24.3 20.0 28.8
0 20 40 60 80 100Percent of total
1998
1993
1988
Source: Based on INEGI data.
Distribution across industries, by wage levelManufacturing Employment in Mexico
Low wage Medium low
Medium high high wage
0.2
.4.6
.8P
erce
nt o
f im
por
ts
China Mexico
Low Med-low Med-hi High Low Med-low Med-hi High
Note: Author's calculation using U.S. Customs data and OECD definitions.
By Hourly WageU.S. Manufacturing Imports from China and Mexico
1990 2000
Competition in US market
MX competes more directly with CHN than the rest of Latin America
Comparable with Asian countriesIncreased during the last 30 yearsConcentration in manufacturing
In which industries do MX and CHN compete?“Gain”- MX gains market share in US, CHN loses“Loss” – MX loses market share in US, CHN gains“Compete” – Both gain share in US market
Gains, 1995-2000US SIC Description Mexico China Mexico China Mexico China
High 4 3661 Telephone and telegraph apparatus 2307.0 2253.4 12.0 11.7 6.1 -3.9Low 1 2369 Girls' and children's outerwear, n.e.c. 2217.2 1521.7 16.1 11.1 8.4 -5.3
Low 1 2325 Men's and boys' trousers and slacks 2168.6 388.9 29.6 5.3 10.7 -2.5Low 1 2321 Men's and boys' shirts 1189.3 444.4 13.3 5.0 9.2 -2.0Low 1 2331 Women's and misses' blouses and shirts 862.4 1208.3 9.7 13.6 2.7 -2.0
Medium-hi 3 3612 Transformers, except electronic 701.8 162.2 45.1 10.4 3.4 -1.6High 2 3841 Surgical and medical instruments 612.3 82.6 20.4 2.8 6.4 -3.4
Medium-hi 2 3699 Electrical equipment and supplies, n.e.c 474.3 841.3 12.3 21.8 2.9 -6.4
Low 1 2392 House furnishings, n.e.c. 368.0 766.4 11.5 24.0 6.3 -4.2Low 1 2322 Men's and boys' underwear & nightwear 352.1 56.7 15.9 2.6 0.6 -3.6Low 1 2341 Women's and children's underwear 233.1 245.2 8.8 9.2 0.9 -2.0
Low 1 2311 Men's and boys' suits and coats 209.1 80.9 12.5 4.8 8.8 -0.9Low 1 2329 Men's and boys' clothing, n.e.c. 170.7 540.8 5.2 16.4 2.1 -3.6
Medium-hi 4 3511 Turbines and turbine generator sets 134.9 21.1 5.0 0.8 0.8 0.0Low 2 2033 Canned fruits and vegetables 122.1 101.5 10.0 8.3 3.0 -1.2Low 2 2099 Food preparations, n.e.c. 86.8 73.5 5.1 4.3 1.4 -0.3
Medium-hi 4 2865 Cyclic crudes and intermediates 85.0 131.2 2.1 3.3 1.2 -0.2High 4 3728 Aircraft parts and equipment, n.e.c. 58.2 33.2 1.2 0.7 0.5 -0.3High 4 3724 Aircraft engines and engine parts 52.9 30.9 0.6 0.3 0.0 -0.2Low 1 2391 Curtains and draperies 43.1 85.8 11.9 23.7 5.5 -19.8
Change 2000-1995Technology Hourly-wage quartile
US Imports from US Import Share
Losses, 1995-2000US SIC Description Mexico China Mexico China Mexico China
Medium-low 4 2911 Petroleum refining 1374.7 295.5 3.1 0.7 -0.2 0.6Low 1 2399 Fabricated textile products, n.e.c. 792.8 578.5 41.3 30.1 -11.6 8.6
Medium-hi 2 3643 Current-carrying wiring devices 685.5 315.0 26.5 12.2 -0.7 5.7High 1 3675 Electronic capacitors 647.2 35.0 23.1 1.2 -1.6 1.0High 2 3842 Surgical appliances and supplies 509.3 123.4 22.8 5.5 -5.0 1.3
High 1 3672 Printed circuit boards 423.9 313.7 12.7 9.4 -11.4 7.3Low 1 3944 Games, toys, and children's vehicles 396.4 5511.1 4.2 58.9 -3.6 9.9
Medium-hi 2 3564 Blowers and fans 319.3 212.2 23.0 15.3 -14.6 9.9
Low 1 2037 Frozen fruits and vegetables 255.8 55.4 16.7 3.6 -5.3 1.9Medium-hi 4 3641 Electric lamps 243.7 165.7 17.6 12.0 -0.7 5.4
High 2 3845 Electromedical equipment 238.9 49.9 8.7 1.8 0.0 0.6
Medium-hi 4 2869 Industrial organic chemicals, n.e.c. 233.1 401.6 1.8 3.1 -1.4 1.2Medium-hi 4 3632 Household refrigerators and freezers 213.1 99.0 36.1 16.8 -4.3 11.3
Medium-hi 3 3546 Power-driven handtools 170.3 538.6 9.1 28.7 -0.4 18.8Medium-low 3 3261 Vitreous plumbing fixtures 165.2 16.3 53.3 5.3 -0.2 5.2Medium-hi 2 3569 General industrial machinery, n.e.c. 163.9 214.5 2.3 3.0 -0.2 0.2
Low 1 2389 Apparel and accessories, n.e.c. 163.4 272.4 22.6 37.6 -5.5 15.2Medium-hi 3 3635 Household vacuum cleaners 157.0 195.3 27.5 34.2 -7.0 14.7
Low 2 2431 Millwork 146.6 55.0 12.7 4.8 -12.2 3.2Low 1 2514 Metal household furniture 140.2 869.3 9.1 56.4 -0.6 38.0
Technology Hourly-wage quartile
US Imports from US Import Share Change 2000-1995
Increased competition, 1995-2000US SIC Description Mexico China Mexico China Mexico China
High 3 3651 Household audio and video equipment 7490.0 5919.9 26.8 21.2 4.8 5.9
Medium-hi 4 3714 Motor vehicle parts and accessories 6579.8 551.0 17.9 1.5 3.3 0.7
High 3 3571 Electronic computers 4956.8 3130.5 13.2 8.4 8.6 5.4
High 3 3663 Radio and tv communications equipment 4875.6 825.0 28.6 4.8 13.0 1.0
Medium-hi 4 3694 Engine electrical equipment 4578.4 192.9 66.3 2.8 3.9 1.0
High 3 3577 Computer peripheral equipment, n.e.c. 3570.7 5558.3 10.5 16.4 6.5 11.7
Low 2 2599 Furniture and fixtures, n.e.c. 2842.0 3157.9 18.0 20.0 2.9 11.5
Medium-hi 3 3621 Motors and generators 1897.8 354.2 35.9 6.7 9.6 0.2
Medium-hi 3 3357 Nonferrous wiredrawing and insulating 1601.2 698.6 27.7 12.1 1.6 0.5
High 2 3679 Electronic components, n.e.c. 1510.6 2176.3 12.7 18.4 1.8 8.5
High 3 3674 Semiconductors 1499.7 719.8 3.1 1.5 1.3 1.2
High 3 3823 Process control instruments 1180.2 88.3 35.9 2.7 15.0 1.7
Medium-hi 4 3585 Refrigeration and heating equipment 1163.0 241.2 29.3 6.1 9.5 5.5
Medium-hi 2 3625 Relays and industrial controls 1132.8 248.4 28.4 6.2 12.2 2.0
Medium-low 4 3312 Blast furnaces and steel mills 1128.8 549.2 7.4 3.6 0.3 1.4
Medium-hi 3 3494 Valves and pipe fittings, n.e.c. 960.2 260.7 20.6 5.6 7.5 2.9
Medium-hi 3 3678 Electronic connectors 957.7 311.5 32.7 10.6 14.2 2.0
Medium-hi 1 3677 Electronic coils and transformers 872.4 430.5 40.7 20.1 10.1 6.3
High 4 3861 Photographic equipment and supplies 716.4 1212.5 9.4 15.9 6.3 8.0High 3 3824 Fluid meters and counting devices 709.6 13.9 63.9 1.3 3.4 0.8
Change 2000-1995Technology Hourly-wage quartile
US Imports from US Import Share
010
2030
40D
istr
ibu
tion
of i
mp
orts
(%)
Low Med-low Med-hi High
Note: Including imports from Hong Kong.
By industry wage levelMexican Manufacturing Imports from China
1993 2000
02
46
8P
erc
en
t
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
Note: Based on BEA data.
(Percent of total US Manufacturing FDI Stock)US Manufacturing FDI in China and Mexico, 1982-2002
Mexico China
10.1%
24.7%
1.2%
12.3%27.1%
24.6% 23.0%
19.3%
1.2%8.5%
27.4%
20.6%
1990 2000
Textiles/Apparel Auto industry
Non-electr equipment Electr equipmentElectr components Other
Note: Based on INEGI's BIE data.
Maquiladora Employment in Mexico
Trade Policy in the1990s
Evidence of:Expansion of low-wages industriesGreater exports and FDI in such industries
Also, export growth in high-wages / high-tech industries
But China’s exports grew fasterHigher competition with China in such industries
Plant-level impact
Look at panel of approximately 6000 plants over the 1993-2000 period
What would happen to plant-level employment if import competition fell?
Protection benefits mainly least productive firms in low-wages industries
More productive firms in better position to compete with imports
Employment and imports among Mexican plants, 1993-2000
0
2
4
6
8
10
12
%
Low wage Medium-lowwage
Medium-high wage
High wage
Increase in plant employment if imports fall by 1%
Low productivity Medium-low Medium-high High productivity
Trade and Productivity
Productivity not only allows plants to face foreign competition successfully
In addition, trade liberalization and FDI favor productivity growth
Both at the plant level
And in the sector as a whole
Mexico: TFP growth 1993-2000( By industry or plant characteristic)
0.9
1.4
1.9
1.4
1.2
0.8
1.5
0.2
1.7
-0.1
2.0
1.2
-0.2 0.3 0.8 1.3 1.8 2.3
Nacionales
ETN: Resto del mundo
ETN: América del Norte
No usuarios de insumos importados
Usuarios de insumos importados
No exportadoras
Exportadoras
Industria no tranzable en América del Norte
Industria tranzable en América del Norte
Industria no tranzable
Industria tranzable
Sector manufacturero (total)
Tasa de crecimiento promedio annual (%)
Is Chinese competition to blame?
In spite of its undeniable accomplishments, trade policy in the 1990s also created distortions in favor of low-wage industries and protected inefficient producersChina has become a manufacturing powerhouse in international markets and competes directly with Mexico.Why? Fast productivity growth
What can Mexico do?Protectionism is not a long-term answer to Chinese competitionImportant to review what factors inhibit competitiveness and productivity in Mexico
Business climateProduction costsResearch and development
15
16
27
28
30
30
30
30
31
35
0 10 20 30 40Highest marginal corporate tax, 2002
Brazil
Chile
Korea
Malaysia
CHINA
Costa Rica
Indonesia
Thailand
Czech Rep.
MEXICO
Source: Banco Mundial, Indicadores del Desarrollo Mundial
High Corporate Taxes
146
136
116
103
68
35
33
30
22
13
0 50 100 150Domestic credit to private sector (% of GDP), 2002
Malaysia
CHINA
Korea
Thailand
Chile
Brazil
Czech Rep.
Costa Rica
Indonesia
MEXICO
Source: World Bank, World Development Indicators
Scarce Banking Credit
75
180
200
210
225
270
270
325
370
380
0 100 200 300 400Days to enforce a contract, 2003
Korea
CHINA
Chile
Thailand
Indonesia
Czech Rep.
Malaysia
MEXICO
Costa Rica
Brazil
Source: World Bank, World Development Indicators
Weak Contract Protection
3
3
3
2
2
2
2
1
1
0
0 1 2 3Creditor rights index (0=weak to 4=strong), 2003
Thailand
Korea
Czech Rep.
Malaysia
Indonesia
Chile
CHINA
Costa Rica
Brazil
MEXICO
Source: World Bank, World Development Indicators
Weak Creditor Protection
0.97
1.93
1.93
2.19
2.37
2.45
3.01
0 1 2 3Telephone average cost of call to US (US$ per 3 minutes), 2000
Czech Rep.
Costa Rica
Korea
Thailand
Malaysia
Chile
MEXICO
Source: World Bank, World Development Indicators
High Telecommunications Costs
7.0
8.4
9.7
10.1
20.8
21.8
22.3
22.6
25.8
28.0
0 10 20 30Internet total monthly price ($ per 20 hours of use), 2003
Thailand
Malaysia
Korea
CHINA
Czech Rep.
Chile
Indonesia
MEXICO
Costa Rica
Brazil
Source: World Bank, World Development Indicators
High Internet Costs
79.5
3.1
2.3
2.3
1.0
0.9
0.8
0.7
0.2
0.1
0 20 40 60 80Patent applications granted in the US (per million people), 2000
Korea
Costa Rica
Malaysia
Czech Rep.
Chile
MEXICO
Thailand
Brazil
CHINA
Indonesia
Source: World Bank, World Development Indicators
Limited Patents
2882
1469
584
533
419
324
227
154
130
74
0 1,000 2,000 3,000Researchers in R&D (per million people), 1999
Korea
Czech Rep.
CHINA
Costa Rica
Chile
Brazil
MEXICO
Malaysia
Indonesia
Thailand
Source: World Bank, World Development Indicators
Low R&D Efforts