International competition and industrial evolution: Evidence from the impact of Chinese competition on Mexican maquiladoras

Effects of the competition between two South locations (Mexico and China) in a Northern market (US) are analyzed. By employing a plant-level data set that covers the universe of Mexican export processing plants (maquiladoras) from 1990 to 2006 and relying on an instrumental variable strategy that ex...

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Bibliographic Details
Published in:Journal of development economics 2013-11, Vol.105, p.267-287
Main Authors: Utar, Hale, Ruiz, Luis B. Torres
Format: Article
Language:English
Subjects:
China
Competition
Economic impact
Economic theory
Employment
Experimental methods
Export processing
Foreign direct investment
Industrial upgrading
International competition
International trade
Labor economics
Latin America
Manufacturing
Maquiladora
Plant dynamics
Studies
Twin plants
U.S.A
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Summary:Effects of the competition between two South locations (Mexico and China) in a Northern market (US) are analyzed. By employing a plant-level data set that covers the universe of Mexican export processing plants (maquiladoras) from 1990 to 2006 and relying on an instrumental variable strategy that exploits exogenous intensification of Chinese imports in the world in conjunction with the WTO accession of China, the empirical analysis reveals a substantial effect of intensified Chinese competition on maquiladoras. In particular, competition from China has a negative and significant impact on employment and plant growth, both through the intensive and the extensive margin. As the negative impact is stronger on the most unskilled labor intensive sectors, it triggers significant sectoral reallocation. Suggestive evidence on industrial upgrading among maquiladoras in response to competition with China is also provided. Overall the results provide additional insight into the way low-wage competition shapes the evolution of industries.
ISSN:0304-3878
1872-6089
DOI:10.1016/j.jdeveco.2013.08.004