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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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Presentation on theme: "The Enclave Economy Foreign Investment and Sustainable Development in Mexicos Silicon Valley Kevin P. Gallagher Boston University Lyuba Zarsky Monterey."— Presentation transcript:

1 The Enclave Economy Foreign Investment and Sustainable Development in Mexicos Silicon Valley Kevin P. Gallagher Boston University Lyuba Zarsky Monterey Institute for International Studies Global Development and Environment Institute Tufts University

2 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.

3 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

4 Attract FDI?

5 Source: World Bank WDI, 2007

6 Source: Cadena Productiva de la Electronica (CADELEC), 2007

7 Electronics Clusters in Mexico Source: Gallagher and Zarsky, 2007

8 Why firms came Proximity to U.S. Markets (hi-tech boom) NAFTA PITEX and Maquila Exchange rate Infrastructure Wages Pollution haven?

9 Why firms left Slowdown in U.S. demand Chinas accession to WTO Overvaluation of the peso (wages) Lack of local productive capacities Lack of domestic and regional markets Source: Dussel Peters, Enrique. 2005. Economic Opportunities and Challenges posed by China for Mexico and Central America: DIE (German Development Institute).

10 Source: Cadena Productiva de la Electronica (CADELEC), 2007

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12 Source: United Nations Commodity Trade Statistics, 2006

13 China: Taking Away the Ladder? Source: Gallagher and Porzecanski, 2007

14 Generate Spillovers?

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17 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 Survival story: –Electronica Pantera

18 Human Capital Spillovers Assembly work: –Contract employees –basic training –Limited joint R&D Few domestic firms to spill over to Success story: –IBM training center and spin-offs

19 Forward Linkages Hi-tech diffusion relatively low Limited success of digital divide projects Source: INEGI, 2007, Peres, 1992

20 Why so few spillovers? Market Failures –Barriers to entry into global supplier networks –No access to credit and finance –Environmental externalities Government Failures –Orientation of ISI –Incentive to import inputs –Macroeconomic uncertainty –Little R&D, human capital formation, leveraging Firm failures –Little R&D –Weak capacity –Scale

21 Source: Gobierno del Estado de Jalisco, 2001

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23 Environmental Spillovers?

24 IT Assembly and Environment Copper and soldering of plates with lead and tin –Formaldehyde and solder drass Exposure and waste water issues Adding brominated flame retardants to circuit boards to reduce flammability –Polybrominated diphenyl ether PBDE Bioaccumulative E-waste

25 Environmental Spillovers Technology Transfer: –Vintage effects vs. end-of-pipe –Bringing EMS but not clear if in compliance –SCI-Sanmina and Industria Limpia program Greening the supply chain: –Little contact with local suppliers to begin with –HP: workshops with locals, some ISO requirements Exporting to higher standards: –Not in Guadalajara plants (but in plants closer to higher regulation markets) –Globalization of environmentalism

26 Lessons for Mexico and Beyond FDI is a means to development, not an end in itself Complementary domestic policies are needed to facilitate spillovers, growth and environmental protection Trade and financial agreements must preserve the policy space for complementary efforts on a national scale

27 Available from MIT Press www.mitpress.mit.org Stanford University Press www.sup.org Earthscan Publications www.earthscan.co.uk

28 Available from MIT Press www.mitpress.mit.org

29 What to do? Strategies: –Build domestic capacities for production and innovation (education, R&D, infrastructure) –Reduce domestic cost of capital –Build domestic and regional markets –Establish ROHS-like environmental regulations for Mexico Challenges: –Fiscal crisis –Government capacity –Constraints of trade regimes –Inflation –Relative wage/productivity/policy space of China

30 Electronics Clusters in Mexico Mexicali SONY DAEWOO (SLRC) MITSUBISHI GOLDSTAR AUDIO & VIDEO ELECTRODOMESTIC COMPUTER EQUIPMENT TELECOM OTHER Reynosa VITROMATIC NOKIA DELCO (Automotriz) PHILIPS SONY MATSUSHITA (Automotriz) LUCENT TECHNOLOGIES FUJITSU (Automotriz) CONDURA (Automotriz) DELNOSA (Automotriz) Chihuahua MOTOROLA ALTEL KIOCERA JABIL Juárez KENWOOD ELECTROLUX ACER TOSHIBA PHILIPS THOMSON ELAMEX PLEXUS Tijuana SANYO SONY HITACHI MATSUSHITA JVC SAMSUNG PIONNER SANYO ELECTRODOMÉSTICOS PHILIPS CASIO KODAK CANON KYOCERA INTERNACIONAL RECTIFIER MITSUBISHI SHARP Guadalajara I.B.M H.P. TECHNICOLOR TELECT TYCO KODAK VOGT ELECTRONIC SIEMENS VDO SOLECTRON DE MEXICO FLEXTRONICS JABIL CIRCUIT BENCHMARK SANMINA-SCI State of Mexico ELECTROLUX FILTER QUEEN HOOVER IMAN KOBLENZ MABE PHILIPS SUNBEAM OLIVETTI PANASONIC OLIMPIA


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