Public Governance and Territorial Development

In this paper, we provide evidence based on New Economic Geography Models and estimate the statistical effects of second nature advantages to shed some light on the locational transformation of the manufacturing sector in Mexico. Changes in regional industry shares and regional wages during trade liberalization show that the border states have gained at the expense of the old manufacturing belt in Mexico City. Furthermore, the statistical evidence indicates that that the relevant market has shifted from Mexico City to the USA. However, the relation between trade liberalization and industry location is subject to a considerable level of industry heterogeneity, suggesting the co-existence of processes of regional convergence and divergence.

The paper analyses the impact trade liberalization and economic integration have had on regional growth and regional disparities in Mexico over the last two decades. It is highlighted that the passage from an import substitution system to membership of the General Agreement on Tariffs and Trade (GATT) first, and to economic integration in the North American Free Trade Agreement (NAFTA) later, has been associated with greater concentration of economic activity and territorial polarization. The analysis also shows that these changes herald a period of transition between two growth models.

Traditional trade theories explain international exchanges by relative resource endowments, focusing on issues such as country-product specialisation, as well as developments in factor prices and its welfare implications. An important issue –often overlooked- is the spatial impact of international trade. However, recent contributions from the new economic geography offer important explanations as to how trade and location of economic activity are linked. One important result is that both concentration and dispersion may be stable outcomes of firm-location behaviour. Such location processes are subject to two sets of countervailing forces stimulating either concentration or dispersion, subject to transportation costs. Mexico offers an interesting case for the analysis of the relative importance of the alternative explanations of production structures in the form of resource endowments, externalities and transport costs. Mexico’s industrialisation strategy was until 1985, based on imp...

Traditional trade theories explain international exchanges by relative resource endowments, focusing on issues such as country-product specialisation, as well as developments in factor prices and its welfare implications. An important issue –often overlookedis the spatial impact of international trade. However, recent contributions from the new economic geography offer important explanations as to how trade and location of economic activity are linked. One important result is that both concentration and dispersion may be stable outcomes of firm-location behaviour. Such location processes are subject to two sets of countervailing forces stimulating either concentration or dispersion, subject to transportation costs. Mexico offers an interesting case for the analysis of the relative importance of the alternative explanations of production structures in the form of resource endowments, externalities and transport costs. Mexico’s industrialisation strategy was until 1985, based on impor...