DOI 10.1007/s10037-009-0041-7

O R I G I N A L P A P E R

Jahrbuch fur Regionalwissenschaft (2010) 30: 23–44

The aftermath of openness and integration in theMexican manufacturing

Alejandra Berenice Trejo Nieto

Accepted: 1 December 2009 / Published online: 19 January 2010© Springer-Verlag 2010

Abstract Mexico is a country whose development process has been traditionallycharacterised by a substantial unbalanced performance of its regions. Since the early1980’s it carried out an intense liberalisation and export promotion programme rep-resentative of a new national development stratagem. This paper looks at the spatialpatterns of Mexican manufacturing at the same time as the shifts after the tradeliberalisations are particularly weighed up. Data on manufacturing Gross DomesticProduct by state is employed for an examination of shares, agglomeration indicesand densities. The data reveals a long-run dispersion tendency, the changes howeverare small. Although the “largest” geographic dispersion happened after the gener-alised liberalisation programme and after the entry into force of the North AmericaFree Trade Agreement relocation was already in progress in the 1970’s. States in thenorth were the initial beneficiaries of the spatial decentralisation of manufacturing butstates in the so called Bajıo region have had the major upward changes more recently.There is no evidence of a significant change in a dual regional structure. The argu-ment about cumulative causation and the advantages of initial conditions is pertinentfor the case of Mexico City. Moreover a multi-agglomerate pattern within the core isconsolidating.

Keywords Regional disparities · Mexican manufacturing · Economic geography ·Agglomeration · Trade liberalisation

Article originally presented at the International Seminar on Globalization, Agglomeration and InclusiveGrowth, organized by UNCTAD-JUECON Programme, Department of Economics, Jadavpur University,Kolkata and UNCTAD-India, New Delhi May 21–22, 2009.

A. B. Trejo Nieto (�)Centro de Investigaciones Socioeconomicas, Universidad Autonoma de Coahuila,Unidad Campo Redondo, Edificio S, 25280 Saltillo, Mexicoe-mail: alejandra.trejo@uadec.edu.mx

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1 Introduction

The strong spatial clustering of economic activity has been a remarkable character-istic of many economies in the contemporary world. The distribution of economicactivity in space is extremely ‘lumpy’ and characterised by significant variations inthe intensity and character of economic activities from one place to another. Suchunevenness is manifest at diverse geographic levels. In the world economy a core-periphery structure is identified: high income countries constitute a core which issituated in the North Hemisphere whereas productivity per capita declines with dis-tance from this core. In 2000 more than 80% of the world’s Gross Domestic Product(GDP) was produced by three regional blocs whilst this pattern has become strongerover time. Similarly, 50% of the world’s GDP is produced by 15% of the world’s pop-ulation while 54% is produced by countries occupying just 10% of the world’s landarea (Henderson et al. 2001). In Europe the United Kingdom, Belgium, Germany,Switzerland and Italy form the core of that continent’s economic activity (Brackmanet al. 2001). Spatial disparities are rather evident within countries where there are in-dustrial centres with a high concentration of economic activity and employment, andregions whose contribution to GDP and employment is marginal (Venables 2003).Regional disparities are even stronger in less developed countries where metropolitanconcentrations of activity and population are typical. Henderson et al. (2001) pointsout that agglomeration of economic activity is often reflected in the urban system ofthose nations.

On the other hand, the geographic distribution of economic activities withina country may undergo changes induced by the external shock that events such astrade liberalisation and economic integration represent. Such external shocks are, onthe one hand, associated with the processes of globalisation and, on the other, deter-mined by the kind of policies that countries implement. Protectionist policies havebeen frequently assumed to have led to a strong spatial agglomeration of economicactivities provided that in an economy closed to external trade firms tend to locatenear the main domestic markets -usually the capital city. Likewise it has been sug-gested that trade liberalisation and economic integration led to changes the spatialdistribution of production and employment within countries where the outcomes canvary from dispersion of economic activities, to increasing agglomeration or simplyrelocation.

In Mexico the economic dominance of Distrito Federal – the administrative regioncoextensive with Mexico City – and a few other states is emblematic of the geographyof manufacturing during the Import Substitution Industrialisation regime (ISI). In the1980s Mexico moved from an inward-looking industrialisation strategy towards anopen economy regime. Far-reaching restructuring policies were expected to be ben-eficial in terms of regional equity and spatial development only under the premisethat backward regions gained from increasing trade liberalisation resulting in a morehomogeneous and a less fragmented geography of production.

By and large previous research has provided evidence of a northward relocation ofmanufacturing with a corresponding geographic adjustment that followed the adop-tion of an extensive program of trade liberalisation (see for instance Krugman andLivas Elizondo 1996; Chamboux-Leroux 2001; Sanchez-Reaza and Jordaan 2002;

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The aftermath of openness and integration in the Mexican manufacturing 25

Corona Jımenez 2003; Decuir-Viruez 2003; Sanchez-Reaza and Jordaan 2004). Someof these studies also suggest that the relative fall of Distrito Federal became less ap-parent over time because this region underwent recoveries in some periods. Henceoutcomes are still contentious; in particular two questions remain open: 1) to what ex-tent has the spatial pattern of production in Mexico changed since the opening of theeconomy? And 2) what have been the role of economic reforms in such a change?

This paper attempts to evaluate, in the light of the Mexican data set, mainly the ques-tion of how the internal economic geography of Mexican manufacturing has evolvedand adjusted to trade liberalisation and integration. We look at regional shares in GDP,GDP densities as well as summary indicators of overall levels of agglomeration. Ex-amining past and current patterns affords the possibility of observing location and ag-glomeration dynamics. We find a number of stylised facts about location and agglomer-ation which are the categories used in order to characterise the observed ‘geographicallandscape’ of Mexican manufacturing. We also try to identify the actual regional struc-ture. Contrary to the argument of the positive effect of free trade on spatial disparitiesthis paper puts forward evidence that spatial development in Mexico has been limitedto and localised in particular regions. Thus a mild impact of external shocks on ag-glomeration but a number of noteworthy shifts in location is a nuanced outcome to beconsidered. Certainly, the resulting spatial distribution of manufacturing also dependon the initial conditions whilst additional forces, other than trade or Foreign Direct In-vestment (FDI), may as well lead to one or another result.

In the subsequent sections we present a review of the main characteristics of thetransition from a protectionist to a liberalised economy in Mexico followed by a brieftheoretical discussion. Then after a methodological note the changes in the geo-graphic distribution of manufacturing are analysed using a series of indicators. Alsoa characterisation of the regional structure of manufacturing is depicted. Finally thereis a section with concluding comments.

2 Industrialisation and trade regimes in Mexico

After its industrialisation take-off in the 1940’s Mexico implemented import substi-tution industrialisation as their predominant economic scheme for over twenty years.The government explicitly stated that the expansion of the manufacturing sector wasessential to modernisation and economic self-sufficiency in the long-run. Therefore itset the conditions for profitable private investment by indirect regulation and throughdirect intervention in specific and strategic industries. It also established mechanismsby which public resources were allocated to investment projects (Norris et al. 1999).Largely economic, industrial and trade policies were set in accordance with the ISImodel (Norris et al. 1999):

1. Macroeconomic policy assured durable economic stability: public deficits, moneysupply and interest rates were determined by policy. Nominal wages and labourunions were also well under control.

2. Trade policy set up high levels of protection which allowed domestic producers toenjoy high profits. A comprehensive protective apparatus was set in order to in-

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crease the attractiveness of productive investment. This system relied strongly onquantitative import controls being import-licensing requirements the primary toolfor protectionist purposes.1

3. Industrial policy promoted the reallocation of resources to manufacturing activity.It targeted specific sectors, which benefited from tax reductions, credit allocation,preferential interest rates, reimbursement of import duties and access to importquotas.

In principle, the progression of early Mexican industrialisation under the ISI strategydoes not differ radically from that of other Newly Industrialised Countries. These un-derwent a conversion in their economic structures from predominantly agriculturalto industrial, and a transition from a largely rural society towards an urban popula-tion (Fischer et al. 1982). The Mexican economy reached stable and rapid economicgrowth, an expansion of its domestic productive plant and market as well as priceand exchange rate stability (Kalter 1992). However Mexico did not transform itsdomestic manufactures into successful exports as many East Asian countries did. In-stead, it opted for a more restrained approach to export promotion. This consisted ofa regional programme in which states at the border with the US underwent industri-alisation of some kind through the implementation of the maquiladoras or in-bondindustry which reached partial success at the regional level. The establishment of ex-port processing zones (EPZs) along the border with the US favoured only a limitednumber of industries and regions (Cravey 1998; Norris et al. 1999).2 All this resultedin a low ratio of total trade to GDP (Puyana and Romero 2006). Economic plannerswere successful with the first phase of ISI but in the 1970s this model revealed itslimits as a useful development strategy as Mexico’s highly protective structure cre-ated a number of economic inefficiencies and deficiencies (Kalter 1992; Cravey 1998;Norris et al. 1999).

The decline of the industrialisation model brought about a change in perspectivesand a reversal of the whole economic scheme. Not only national but international con-ditions brought the need for urgent restructuring in the early 1980s. Globalisation ofproduction and markets was relevant in accounting for the expansion of new outward-oriented policies. An intense unilateral liberalisation – by which Mexico dismantledits trade barriers to a large extent, privatisation and deregulation processes were theexpression of the significant turnabout in the development approach. The country pro-gressed towards an open-economy regime on a multilateral basis via accession to theGATT (later the World Trade Organisation, WTO), the Asia-Pacific Economic Co-operation (APEC) and the Organisation for Economic Cooperation and Development(OECD).

Due to the slow progress of multilateral negotiations for Mexico the next move inorder to guarantee the continuity of its liberalisation programme and long-term ac-

1 More than two thirds of total imports required licenses. A number of products imposed duties as highas 100%. The highest rates were imposed on final goods, with relatively lower rates imposed on selectedintermediate and capital goods; higher rates for consumer durables and lower for intermediate and non-durable consumer goods (Gereffi 2003).2 For a few industries there were tariff exemptions, tied to specific export targets, for the import ofintermediate and capital goods. Drawback provisions for import duties on exported goods were designed.

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The aftermath of openness and integration in the Mexican manufacturing 27

cess to its most important market was a formal trade integration with North America(Vega and de la Mora 2003). Geographical proximity along with economic depen-dence made this integration a natural step (Kessel 1995). Mexico’s main motivationwas to increase FDI flows which potentially would create employment opportunitiesand higher remunerations (Cravey 1998). Signed and put into effect in 1994, NAFTArepresented the first reciprocal Free Trade Agreement (FTA) joining two industri-alised economies, the US and Canada, with a developing country, Mexico (Norriset al. 1999). From the 1990s Mexico negotiated and reached other several FTAs asopposed to sector-by-sector accords. With this it achieved preferential access to forty-two national markets in Europe, Asia and America and represented a potential forexport expansion and diversification, and consequently for production and employ-ment.

Although the domestic demand contracted after a severe economic recession in1995,3 some positive outcomes were reached in terms of exports. The share of non-maquiladora exports within total GDP increased from 17% in the 1993 to over 34%in 2003. Non-oil exports tripled between 1994 and 2008 growing at an annual aver-age rate of 8.4%. The number of exporting firms rose from 22 thousand in 1994 to 34thousand in 1998. Mexico became the eighth largest trading nation in the world andthe first in Latin America (Vega and de la Mora 2003). Maquiladoras played a pre-dominant role in export expansion (Marina Flores 2004). Their number more thandoubled between 1990 and 2001 going from 1500 to 3700 (Lopez Villafane 2001). Inthe 1990s they accounted for more than 40% of Mexico’s total exports (85% shippedto the US) and employment passed the one million mark (Lopez Villafane 2001;Gereffi 2003).

As with regard to trade, manufacturing symbolized the core of total external flows.In Mexico exports in manufactures are more than 95% of total non-oil exports whichin turn are the 90% of the total. Exports in this sector grew at an annual average rateof 12.8% between 1980 and 2008 whereas total non oil exports had an AAGR of10.9%. Due to the heaviness of manufacturing in trade, it was the sector by whichliberalisation and integration could influence national and regional growth.

The main exporting regions were the traditional industrial hubs of Distrito Federaland Nuevo Leon together with the northern states of Chihuahua, Baja California andTamaulipas. Exporting firms concentrated in the north but expanded increasingly tothe Bajıo (Jalisco, Guanajuato and Aguascalientes). The top exporting regions werealso the states with the highest FDI inflows (Lopez Villafane 2001). In 1999 only 302firms accounted for 93% of total exports and foreign firms represented the most sub-stantial part of the exporting sector while domestic firms’ share in total manufacturingexports dropped from 35.8 in 1998 to 25.3% in 2000.

With NAFTA Mexico’s attractiveness increased not only for US investors but alsofor other foreign firms which sought to take advantage of the privileged access to theUS market. Between 1994 and 2003 Mexico received US142 billion dollars of FDI

3 In 1994 a series of internal incidents (political assassinations and an indigenous rebellion in Chiapas)and external events (a remarkable reduction in foreign capital flows into Mexico because of increasesin interest rates in the US) led to the collapse of the Mexican currency and created the conditions fora severe crisis, from which the country had not recovered by 1996.

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and became the fourth recipient of FDI among developing countries and the second inLatin America only behind Brazil. The US was the main source of foreign investmentfollowed by the European Union. By and large FDI in manufacturing was directedtowards the most dynamic exporting sectors (Secretarıa de Economıa 2004).

On the other hand, imports showed a parallel boom. The ratio of imports to GDPgrew from 22% in 1994 to more than 37% in 2003. The imported component of totalsupply increased considerably and reached 16.2% in 2000 whereas the imported com-ponent in manufacturing goods reached 26%. Moreover final goods were the growingcomponent in total imports illustrating an exacerbating import competition in con-sumer goods.

Exports were significantly affected by the US economic slowdown in 2000 whichcaused a decline of this country’s imports. Mexican total and manufacturing produc-tion contracted after the fall in export levels (Figs. 1 and 2). Although the exportstrategy reached partial achievements, as with the ISI, some structural problems soonwere evident. Mexico developed a secondary exporting model characterised by itsfragility and dependence on maquiladora exports which had a limited impact on theeconomy. The economy was heavily reliant on the strategies of transnational compa-nies and on the US’ economic activity. Furthermore, economic growth was attainedto the detriment of employment and wages. Exports responded more to the lack of in-ternal demand during recessive periods and to large devaluations of the peso than toexport promotion itself.

NAFTA signified a limited trade and investment integration due to the asymme-tries among members, principally due to the weak stability of the Mexican economy(cyclic patterns of contractions and slow recoveries, price instabilities, extremelyhigh interest rates and inflation rates, and a currency of questionable steadiness).Even though Mexico expanded its network of FTAs and investment treaties it didnot advanced far into the diversification of exports in any sense. Instead the successof the export-oriented model was limited to a small number of sectors, companies,countries of destinations and regions of origin. In addition to this, structural de-

Fig. 1 Total and Manufacturing GDP Annual Growth Rates, 1994–2006 (%)

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The aftermath of openness and integration in the Mexican manufacturing 29

Fig. 2 Exports’ Annual Growth Rates, 1994–2008 (%)

pendence on imported intermediate and capital goods and technology was hardlyovercome.

Indeed Mexico underwent a very particular kind of globalisation. Mexican global-isation has been very close to an exclusive relationship with the United States. It hasrepresented privileged access to a big market by means of preferences within NAFTA,through which Mexico achieved partial international positioning.

3 Internal economic geographies and economic globalisation

Old and recent literature have highlighted the significance of studying the geograph-ical aspects of the economy because of their link with urbanisation processes andthe evolution of regional development (see for instance Henderson et al., 2001).Similarly, the role of economic globalisation in shaping the geographical land-scape of economies and development is regarded as relevant. With this respecttwo fundamental transformations in the global context remade old perspectives:firstly, the major transformation in how the international economy – markets andproduction – was organised, and secondly a shift in national economic strategiesfrom Import-Substituting Industrialisation (ISI) to Export-Oriented Industrialization(EOI).

By and large economic globalisation has been associated with the increasing inte-gration of trade, production and finance across countries and has been described asthe process in which economic transactions assume a transnational character. It hasbeen to some extent the product of the opening up of economies through trade andinvestment liberalisation both of which have been attained by means of multilateralnegotiations, integration schemes, bilateral agreements and unilateral liberalisationprogrammes. Economic globalisation is likely to have had an impact on the spatialallocation of production and on its efficiency in a similar way as it has an impacton other relevant parameters of productive activities. In this situation, territories at

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different scales undergo transformations leading to processes of adjustment to newscenarios.

From the point of view of traditional trade theory all forms of economic integra-tion are fundamentally beneficial. But the presence of significant external economiesand increasing returns, which is highlighted by the new trade theory and geographicaleconomics theory, may cause trade and integration to have adverse effects such as theuneven distribution of benefits across regions and industries. Similarly, initial leadingregions may capture a disproportionate share of the benefits of increased integra-tion as a result of path dependence advantages. In a multi-country setting: “a countrywith a strong initial position in some industry may find itself with an advantage thatcumulates over time.” (Krugman and Venables 1996, p. 961). A number of theoret-ical models have as their setting a core-periphery structure concerned with a dualismbetween regions within a country. Typically the backward regions host agriculture,whereas developed regions host the bulk of manufacturing activity which brings theassociated benefits of industrialisation.

When economic globalisation drives the formation or the strengthening of a fewdynamic regions – understood these as sub-national geographic units – which arecores of economic activity, then its effects are geographically localised because re-gions do not benefit equally. That is, the effect of economic globalisation on theinternal distribution of economic activity is related with the path of regional togetherwith national development. Economic development efforts undertaken by national,regional or even local governments consistently focus on attracting new and/or ex-panding existing investment by creating the conditions for economic activity to locatein their territories. Hence while trade and investment liberalisation might offer op-portunities for a number of sub-national regions they may also adversely affect otherregions. When there are large shifts in the location of activity as the industrialisationpolicy changes from being inward-looking to being export-oriented then liberalisa-tion and integration produce asymmetric shocks which, in turn, can have temporaryor persistent impacts on the spatial structure of the economy.

A body of theoretical and empirical literature where globalisation is assumed tobe an external shock that affects the internal geography of national economies hasbeen built by the Geographical Economics Theory (GE). Within GE the link be-tween trade liberalisation and integration and the internal economic geography ofcountries has been dealt with assuming different contexts and diverse purposes, somefrom a theoretical stance (Krugman and Livas Elizondo 1996; Krugman and Venables1996; Venables 2000; Paluzie 2001; Crozet and Koening-Soubeyran 2002; Behrens2003; Behrens et al. 2003; Venables 2003), whereas some are more empirically-oriented (Hanson 1998; Hanson 2000; Fujita and Hu 2001; Overman and Winters2003; Brulhart et al. 2004). The results are mixed and inconclusive in stating theactual effect of economic globalisation on the spatial structure of economies.

Thus the debate called attention to the likely geographic shift that would be a con-sequence of a changing regime. In the Mexican case there is the standard idea ofan adjustment from a centralised industrial core to relocation to the states at the USborder as a consequence of the transition from import substitution to export-orientedproduction. However, the issue of regional imbalances is more complex than the sim-ple centre-north relocation.

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The aftermath of openness and integration in the Mexican manufacturing 31

Fig. 3 Traditional manufacturing hubs in Mexico. Source: Author

The dominance of Distrito Federal during the protectionist period is a well-knownfact of Mexico’s economic geography. The agglomeration in Distrito Federal and, ina less degree, in the neighbouring Estado de Mexico was due to the accelerated ur-banisation process and the rural-urban migratory flows. The other relatively sizeableproportion of manufacturing was located in Nuevo Leon and Jalisco which host theother two largest metropolitan areas in the country, Monterrey and Guadalajara. Incontrast, the rest of the states experienced mild to poor industrial agglomeration dur-ing this stage (Sanchez-Reaza and Jordaan 2002; Sanchez-Reaza and Jordaan 2004).

In 1970 Distrito Federal alone accounted for more than 32% of manufacturing.Together the four leading states accounted for more than 66%. This represented anoutstanding phenomenon because these regions comprise only 12% of the country’sarea (Fig. 3). At the beginning of the 1980s this picture had not changed much asthere was only a minor decrease in these regions’ participation. Sanchez-Reaza andJordaan (2002) and (2004) find that approximately 45% of total manufacturing em-ployment was observed in Estado de Mexico and Distrito Federal during the early1980s.

With regard to the geographic patterns of manufacturing after trade liberalisationCorona Jımenez (2003) finds that the bulk of the biggest manufacturing companies4

were located in Distrito Federal, Estado de Mexico, Nuevo Leon and Jalisco. Somegeographic dispersion took place but the progress was not linear. Between 1980and 1989 Distrito Federal’s participation fell, whereas those of Estado de Mexicoand Nuevo Leon also decreased but to a lesser extent. Between 1986 and 1990 thestates with the biggest increases were northern regions such as Coahuila, Chihuahua,Sonora, Tamaulipas and Baja California, but the participation of states in the Bajıo

4 According to the firm’s sales volume.

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such as San Luis Potosı and Guanajuato also increased. In the period 1990–1999 themajor winners were the northern states in addition to Distrito Federal and Jalisco.

Sanchez-Reaza and Jordaan (2002) and (2004) point at a northward localisa-tion/relocalisation process of manufacturing employment. Similarly, Chamboux-Leroux’s (2001) analysis of industrial employment shares shows that between 1985and 1998 the group of states bordering the US increased their participation by 11%while regions in the centre lost 10%. Moreover, between 1988 and 1998 73% of netnew manufacturing jobs were generated in only ten states, of which six were northernstates and four were in the centre and Bajıo.5

According to Decuir-Viruez (2003) the industrial decentralisation was a shift inwhich economic activity moved not only towards the border but also to neighbour-ing states, being a movement from Distrito Federal to its peripheries. Sobrino (2003)points out that, even though they experienced a contraction in their participation,Distrito Federal and Estado de Mexico kept their places as major producers of in-dustrial value added. Jalisco and Nuevo Leon remained at the top, whereas Coahuila,Chihuahua and Puebla joined the list of states with the highest participation in indus-trial activity meaning this that a localised dispersion of manufacturing took place. Inthe same token Corona Jımenez (2003) indicates that the economic decline of Dis-trito Federal was not substantial. Between 1986 and 1990 this region lost importance,but in the period 1990–1999, and particularly in 1994, it underwent a recovery. Thisresurgence was reversed only in 1999.

On the contrary Cravey (1998) actually argues that the transition from a state-led toa liberalised economy was facilitated by a geographical shift of industry from produc-tion sites centred in and around the capital to new sites at dispersed northern locationsthrough maquiladoras. In the 1970s and 1980s, the geographical shift northward andthe dispersion of industrial sites allowed the state to reverse industrial policy not theother way around. In the following sections we carry out a review of changes in thespatial structure of Mexican manufacturing.

4 The contemporary economic geography of Mexican manufacturing

4.1 A note on concepts and methods

In dealing with the patterns and changes in the spatial structure of the economya clarification of concepts is particularly meaningful. Traditionally, agglomerationhas been associated with the clustering of economic activity or population in a par-ticular place without making any demarcation of the geographic scale or industrialaggregation that the concept refers to. It is, therefore, a concept that requires delim-itation of some kind. Agglomeration and concentration are terms that have been usedinterchangeably to refer to the clustering of economic activity in general. Thereforeone differentiation that we make for the purpose of analytical clarity is that existingamong Agglomeration, Concentration and Localisation as these concepts turn out to

5 These ten states are, in descending order, Chihuahua, Baja California, Jalisco, Guanajuato, Nuevo Leon,Puebla. Estado de Mexico, Tamaulipas, Coahuila and Sonora.

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be useful in empirical work. An example of working definitions that take account ofsuch differentiation is that of Brakman et al. (2001) where:

• Geographic agglomeration shows the distribution across space of economic activityat a broadly aggregated level, for instance manufacturing as a whole. It shows ‘howmuch’ or to what extent the aggregated sector is localised in a particular place.

• Geographical concentration is the concept that accounts for the spatial distributionof individual industries.

Thus the difference is just a matter of scale since both agglomeration and concentra-tion account for the geographical distribution of economic activities, although theirfocus is different.

• Localisation, on the other hand responds to a different issue. It indicates ‘where’economic activities or industries locate.

Empirical research uses a large variety of indicators to measure the geographic distri-bution of economic activities. Regional shares are considered a detailed indicator ofthe complete distribution and its use is well extended even though they present limita-tions (they do not provide a measurement of the overall degree of agglomeration northey account for regional sizes). However they are useful for a first look at the spatialdistribution of economic activity and to account for geographic patterns:

Sij = sij/snj

where sij is some indicator of the level of economic activity (GDP, employment, valueadded and so forth) of region i in industry j, and snj is the same indicator but atnational level in industry j.

The Herfindahl index shows to what extent an economic activity is distributedacross a number of geographic units accordingly is an indicator of agglomera-tion/concentration. It is an absolute measure as it does not compare among activities.The maximum value it takes is 1, indicating a high degree of agglomeration; alterna-tively, values close to 1/N (where N is the number of regions) reflect a high degree ofdispersion of industries across states:

HERF k =N∑

n=1

[Yki/Yk national]2

where Y is the gross product (alternatively value-added or employment); k = indus-try; N = number of regions; i = region.

The Herfindahl index is among the most common measures employed in empir-ical research to assess geographic patterns despite the large number and variety ofindices that have been developed. Ellison and Glaeser (1997) and Maurel and Sedillot(1999), for example, propose more informative indices which in addition control forthe effect of plant-size. However, frequently the selection of indices is affected by theavailability of geographic data.

A different measure of the distribution of economic activity is production densi-ties:

Di = GDPi/Kmi2

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where GDPi is the manufacturing GDP of region i and Kmi2 is the region i surfacearea in square kilometres. Density indicators, by which we mean the amount of thelevel of economic activity per unit of territory – such as production or employmentper square kilometre –, are a good approximation to geographical distribution throughwhich one can control for the regional size effect.

As we have pointed out from the early 1980s trade liberalisation, export expansionalongside privatisation and deregulation of the economy was the general approach forfostering economic growth. We use data on manufacturing GDP regional shares fromthe National Institute of Statistics, Geography and Informatics (INEGI) to evaluatethe geographic change of manufacturing production. Annual data from 1993 to 2006are available, but only quinquennial rather than twelve-monthly records exist fromprevious to 1985. The basic geographical units of analysis are the thirty one Mexicanstates and Distrito Federal. This choice is based to some extent on the considerationthat statistical information on yearly GDP is only available at state level rather thanat city or local levels. Moreover the data available allow us to compute the Herfind-hal index rather than other more detailed index. We look only at agglomeration andlocation patterns rather than the concentration of individual industries.

4.2 A shifting geography of manufacturing? Location adjustments vs. pervasiveagglomeration

Figure 4 shows the evolution of regional shares within manufacturing GDP. Between1980 and 1985, the transition period when the generalised trade liberalisation tookplace, the data shows that:

Fig. 4 Regional shares in manufacturing GDP in selected years (%)

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1. The dominant industrial state decreased its participation by almost 4% going from29 to 25%. The other leading states Jalisco, Estado de Mexico and Nuevo Leon hadmodest improvement. Jointly all four states decreased by approximately 2.5%.

2. States at the US border, other than Nuevo Leon, did not perform uniformly.Chihuahua, Coahuila, and Sonora’s shares grew whereas Tamaulipas and BajaCalifornia’s decreased. Therefore their joint increase was marginal (0.75%).

3. The shares of all the states along a corridor formed by Aguascalientes, San LuisPotosi, Queretaro and Guanajuato, the so called Bajio, increased the joint improve-ment being of 2.4%.

4. States in the South and Yucatan Peninsula, excepting Quintana Roo, decreasedtheir contribution to manufacturing GDP.

Some of these tendencies, however, go back to at least the 1970s:

1. Distrito Federal’s participation declined from 32 to 29% between 1970 and 1980.2. Estado de Mexico had a slight improvement.3. Coahuila and Chihuahua, at the US border, had growing shares whereas Baja Cal-

ifornia’s participation declined.4. Bajıo states, with the exception of Guanajuato, improved their participation.5. Campeche, Guerrero and Yucatan in the south underwent declines of various ex-

tents. Interestingly, Tabasco, Chiapas and Oaxaca had increases which were likelydue to an expansion of a number of industries that were linked to the processingof oil. However, like the oil boom in the late 1970s, the sudden dynamism of theseindustries was temporary.

In the period 1993 to 2006 the data reveals a series of tendencies:

1. A declining participation of Distrito Federal, Estado de Mexico and Jalisco along-side increasing shares of Nuevo Leon after 1996.

2. Increases in most north border states with a joint improvement of 4% (Sonora andChihuahua followed an inconsistent tendency).

3. A steadier tendency of manufacturing shares to raise in the Bajıo states, particu-larly in Queretaro and Guanajuato.

4. Conversely, all southern states remained with marginal shares in manufacturingwhich, in addition, were declining over the period (excepting Yucatan that hadminor improvements).

This first approximation to geographic changes in manufacturing gives us evidence ofthe relative increasing importance of the Bajio and the Border states and the fallingof traditional industrial regions. Even though Distrito Federal had declining partici-pation and other states benefited from such a process the aforementioned tendenciestell us little about the extent to which agglomeration in fact changed over time.

By employing a method of analysis similar to that for convergence in per capita in-come we regress the relative change in regional shares on manufacturing GDP againstthe shares in the initial period to get an idea of an eventual catch up in GDP sharesover time. If the coefficient on the initial shares is negative, it will indicate a pro-cess in which the differences between regional shares tend to decrease, which couldtranslate into a reduction in agglomeration. Table 1 shows a summary of the estimates

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1985–1970 2006–1993

Constant 1.2855 0.0805(0.1050) (0.0049)

SGDPt−11 −0.0183 −0.0362(0.0150) (0.0879)

R2 0.046 0.0056Observations 32 32

Standard Errors in parentheses

Table 1 Convergence in states’ GDP shares

Fig. 5 Herfindhal index of agglomeration, 1970–2006

for two broad periods, 1970–1985 and 1993–2006.6 The results show a negative co-efficient indicating that regions’ shares in manufacturing GDP tended to convergebetween 1970 and 1985 and between 1993 and 2004. However, the coefficients arenot statistically significant and the R2s values are near zero.

To check whether agglomeration levels actually showed the declining tendencythat a process of convergence would imply, the σ convergence (decreasing StandardDeviation SD)7 and the Herfindhal index of geographic agglomeration were com-puted. However in Fig. 5 only the Herfindhal index is shown since both indicatorsfollow exactly the same long run tendency of decreasing agglomeration. Between1970 and 1985 as well as from 1993 onwards there is a steady declining trend but nosubstantial variations are noticeable. The largest changes are observed between 1980and 1985 and between 1994 and 1995 just after unilateral liberalisation and NAFTAentered into force. Increases in agglomeration is identified only in 1997 and 2002.

6 This period are used because there is no GDP data between 1986 and 1992 and the methodology forcalculating GDP in the two periods presented are different.7 Upward changes in the standard deviation indicate wider differences in the values of a distribution. Inother words, a higher SD shows that there are more disparities among observations. Therefore with a de-crease in this statistic the distribution becomes more homogeneous. In the case of densities a decliningSD is likely to indicate that GDP is spreading spatially among a bigger number of regions (dispersion istaking place).

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The aftermath of openness and integration in the Mexican manufacturing 37

How can we account for such small changes in agglomeration? Although the prop-erties of the indicators may explain this, Sobrino (2003) and others call attentionto the minor contraction in Distrito Federal’s shares that has guaranteed its sus-tained supremacy over time (cumulative causation and initial conditions). DistritoFederal shares in manufacturing expand when agglomeration increases (1997 and2002) whereas its reduction after 1998 is rather small.

Unquestionably relocalisation of manufacturing production from Distrito Federalto other states has taken place, which confirms previous studies. However, what isstriking about the results on agglomeration is summed up in a couple of stylised facts:

1. There is a persistent agglomeration of manufacturing activity. Agglomeration lev-els show little variation and Distrito Federal has sustained its predominance.

2. A process of geographic dispersion was having effect before trade liberalisation.States at the US border started to build an important industrial base since the1960s. States in the Bajıo also began to enjoy some of the spread of manufacturingbefore the generalised trade liberalisation.

These findings concur with Corona Jimenez’s observation that liberalising policiestriggered an adjustment involving relocation to other states and a decline in DistritoFederal. However, with a new set of reforms the subsequent changes are smaller andfirms’ movements toward the border become less likely. Instead, there is increasingrelocation toward states in the Bajıo, and none major movements towards southern re-gions. This makes a persistent agglomeration but in different locations. The decline inthe traditionally industrialised Mexican states favoured only states at the border andin the Bajıo.

Density indicators are another way of looking at geographic differences in orderto see how regions are unbalanced in the distribution of economic activity relative totheir surface areas. In this case regional differences are also manifest when allowingfor regional sizes since GDP densities vary significantly from state to state. More-over between 1993 and 2006 manufacturing GDP became more geographically densein the traditional manufacturing hubs of Distrito Federal and Estado de Mexico, anddensities also increased significantly in the Bajio (Figs. 6 and 7).

There are extreme cases Distrito Federal on the one hand, and Baja California Surand Campeche on the other with approximately 28 841 and 5 thousand Mexican pesosper square kilometre respectively in 2006. Distrito Federal, Estado de Mexico, More-los and Aguascalientes have had the biggest production densities and have generallybeen ranked in the same positions throughout the period 1993–2006. As a matter offact, no major changes in the ranking occurred in the whole period. The ten mostcrowded states are located mainly in the centre of the country and in the Bajıo, withthe exception of Nuevo Leon which is in the north but has been part of the tradi-tional industrial hubs even so. The states at the US border have medium levels of GDPdensities, whereas the south has mostly low-density states.

Looking at the 1993–2006 period the evolution of the GDP densities standard de-viation illustrates a different tendency of regional disparities. It indicates that whenconsidering states’ territorial size dispersion of production among states was not thegoverning tendency. Instead an inverted U shape is observed between 1995 and 2005(Fig. 8).

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38 A. B. Trejo Nieto

Fig. 6 Manufacturing GDP densities, 1993

Fig. 7 Manufacturing GDP densities, 2006

In contrast to the regional shares standard deviations and the Herfindhal index weobserve an overall increase in agglomeration between 1993 and 2006. Between 1995and 2001 a solid process of spatial reconcentration of production is clear but reversedafterwards. This turnaround, however, does not demonstrate that substantial regionalsimilarity has been reached as a result of trade liberalisation or that dispersion hasbeen widespread.

For Spain Brand (2004) finds that trade liberalisation resulted in a reorganizationof industrial structures in the agglomerates of Spanish clusters. In the Spanish casethe increased trade liberalisation and integration was not sufficiently strong to un-

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The aftermath of openness and integration in the Mexican manufacturing 39

Fig. 8 Regional GDP densities standard deviation, 1993–2006 (Mexican pesos)

dermine the existing geography of production. Similarly, an important propositionabout the Mexican economic geography and the adjustment after trade liberalisa-tion and NAFTA emerges: the diminishing but persisting agglomeration of overallmanufacturing is evidence of an outcome in which integration did not affected thepervasive clustering of production significantly, although it altered locational pat-terns. In addition, as the Distrito Federal’s predominance has been continual theargument about cumulative causation and the advantages of initial conditions is rein-forced in a within-country regional setting where the supremacy of the manufacturinghub has been sustained over time.

5 The spatial configuration of manufacturing production

Rodrıguez-Pose and Sanchez-Reaza (2003) characterised the internal territorial pat-tern during the ISI period as a dual economy that emerged before the ISI period. Theintrinsic characteristics of the ISI model accentuated but did not create the economicbackwardness of southern states, which remained relatively isolated from the wholeprocess of industrialisation and reliant mostly on primary activities. Likewise, ISI sus-tained and reinforced the already existing metropolitan areas where the main industrialpoles were located and which were the hub markets of the domestically protected indus-tries.Themaquiladoraprogrammecontributed to theconfigurationofaspatialpattern inwhich theregionsin thenorthborderwereincorporatedintoan industrialisationprocess.

In line with the idea of duality, Bassols Batalla (1998) proposes that six out ofeight Mexican regions have been en route to reaching relatively high integration with

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40 A. B. Trejo Nieto

each other tending to form a single integrated core.8 In Bassols’ words the dual struc-ture was originated by a longstanding chaotic developmental process in which twoeconomic regions subsisted. Due to the particular way in which the process of eco-nomic development in Mexico operated, the biggest region kept the supremacy thatwas historically established even before the Spaniards conquered the country.

In order to show how the spatial structure of Mexican manufacturing shifted froma ‘core-periphery’ dual geographic pattern some questions must be addressed. Is thecore formed by one big homogeneous region with a unique production structure?Or, instead, can the core include various dynamic regions that cohabit geographi-cally with secondary centres? Is there the possibility of duality within the core orwithin the periphery? These questions make any straightforward account debatableand controversial.

The grouping of the thirty two states into broad regions can give a picture ofthe various alternative regional structures. Firstly, we consider the dual pattern inwhich the states located from the centre to the north are put together into a singleregion and the states in the south and the Yucatan peninsula form another region.According to this regional classification the participation of the periphery and corewithin manufacturing GDP remained virtually the same (about 4% the former and96% the later); the south did not improve at all its industrial shares. The duality ex-pressed as a core-periphery or north-south divide between an industrial hub and anagricultural periphery has historically existed and continues. The core has becomea highly developed and industrialised economy compared to the south. This duality isa sign of the persistence in disparities with a clear regional and geographical charac-ter in which the south remained behind. Hence when stating that the significant movefrom the centre towards the north was the great contribution of trade liberalisationand integration to the geographic structure of production in Mexico, their virtues interms of reducing regional differences and promoting spatial development were over-estimated. The grounds of this assertion is twofold: on the one hand, the south wasleft out of the analysis on many occasions; on the other, dispersion had taken placebefore the trade liberalisation and so other forces were likely to be already in motion.

Although it was expected that trade liberalisation would bring profound alleviationof regional disparities, the outcome is rather heterogeneous and complex. Dominguesand Machado Ruiz (2005) find evidence that industrial dispersion in Brazil, like inother developing countries where high levels of spatial clustering is a common fea-ture, has been limited to a few regions. Likewise, the announced industrial spreadof Mexican manufacturing has been geographically restricted, only the traditionalindustrial nuclei and newly industrialised states have tended to equalise; moreover lo-cation and relocation has been among states in the core. Indeed this has become morehomogeneous and its industrial geography more even.

8 These regions are Baja California, Baja California Sur, Sonora, Sinaloa and Nayarit in the northwest;Chihuahua, Coahuila, Durango, Zacatecas and San Luis Potosı in the north; NL and Tamaulipas in thenortheast: Jal, Aguascalientes, Colima, Michoacan and Guanajuato in the west; Queretaro, EM, DF,Morelos, Hidalgo, Tlaxcala and Puebla in the centre-east; Veracruz and Tabasco in the east. The tworemaining regions are Guerrero Oaxaca and Chiapas in the south and Campeche, Yucatan and QuintanaRoo in the Yucatan Peninsula.

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The aftermath of openness and integration in the Mexican manufacturing 41

Fig. 9 Regional participations in GDP manufacturing, 1970–2006 (%)

The dual pattern should be dealt with cautiously as well because intraregionaldifferences also exist. The economic landscape within cores and peripheries mayinclude a mixture of diverse economic structures; geographic heterogeneity and frag-mentation can be identified in the Mexican manufacturing. If allowing for an alter-native setting the evidence reveal a ‘multi-agglomerate’ geographic structure, bestdescribed as a within-country ‘polycentric production structure’ where several indus-trial centres and peripheries are found. There are three defined geographic manufac-turing ‘agglomerates’ within the core: the north-border, the Bajıo and the traditionalhub which exist geographically with a group of peripheral states. This grouping al-lows us to perceive how the country’s periphery and the core’s periphery have notundergone any substantial relocalisation, whereas the decline of the traditional hubhas certainly favoured the border in some periods but consistently more the Bajiostates. We also see that such process does not have its origins in the generalised lib-eralisation or NAFTA (Fig. 9). This multi-centred context make the panorama rathercomplex because it implies agglomerates which can be geographically removed fromeach other but which have similar production densities or intensities.

6 Concluding comments

In this paper we find that while the economic policy reorientation had an impacton the geography of Mexican manufacturing production some progression towardsa new geographical configuration started prior to the generalised policy shift. Despitechanges in industrial location the large and sustained regional differences remain andhave an impact on development at a more comprehensive level. The large-scale con-clusion that emerges is that the slow-moving rearrangement of manufacturing wasnot set off by the broad schemes of economic liberalisation. The generalised pro-gramme of export promotion strategy and liberalisation did not give rise to relocationof manufacturing and the relative increasing importance of northern and Bajio statesbut supported a process already in progress. Data point to an outcome in which therewere minor changes in the degree of geographic agglomeration making the geograph-ical disparities continual. With regard to this two conclusions are suggested:

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42 A. B. Trejo Nieto

1. From a dynamic perspective there has been a tendency towards dispersion ofmanufacturing, yet this dispersion has been minimal.

2. From a static point of view manufacturing activity is still very much agglomerated.

As relocation and declining agglomeration were ongoing phenomena they cannot beentirely attributed to the economic reforms although they seem to have had an impact.The larger fall between 1980 and 1985 may represent the adjustment after the first setof efforts to liberalise external trade was implemented. The second significant step wasentry into GATT in 1986 and the concomitant broader program of liberalisation, yet weare unable to verify the effects of this period. Finally, there was also a decrease in ag-glomeration after NAFTA but not very substantial. Therefore economic reforms werea contributing factor for location shifts but had a limited impact in reducing agglomer-ation of manufacturing. A number of forces, other than institutionalised free trade andinvestment, are likely to have been playing a role previous to the change in economicpolicy.

The resulting scenario is closer to an outcome where the opening up of the economyto trade and investment produced some relocation of manufacturing with a mild effecton agglomeration. Accordingly the unequal performance of Mexican states is still a re-ality as the trade liberalisation’s impact in promoting widespread regional developmenthas been negligible and adverse for southern states. In contrast relocation has led to theformation of new manufacturing sub-centres in northern and Bajio states.

The course that the discussion on the geographical dispersion and decentralisationof the Mexican manufacturing industry takes will also hinge on what geographical con-figuration we allow for. Even though the findings go some way towards explaininga widening core-periphery split or a north-south divide, on an intraregional scale re-gional disparities might involve far more than just a dual pattern because intraregionaldifferences within the core and the periphery can lead to greater industrial territorialcomplexity.

One issue of importance explaining the expansion of Bajio states is the impact ofthe imported component of trade relative to exports. Due to trade liberalisation re-sulting from changes in economic policies, a large number of firms producing for theexport market generate a pull effect in which the manufacturing sector moves towardsthose regions in which exports are higher by reason of better access to external mar-kets. But on the other hand, a considerable amount of foreign products flowing intothe domestic market might favour the relocation towards internal regions far fromMexico’s borders in an attempt to avoid foreign competition. Further research mayperhaps look at this and other issues.

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