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Shocks Hit Workers Twice In Offshoring Industries: Lessons From Mexico

Daniel Lederman's picture

Factory in Mexico. Source: Alan Grinberg -- http://www.flickr.com/photos/agrinberg/5536586224/The world is increasingly interconnected, and nowhere is a better example of that than the border between Mexico and the US. Lined with factories, the division between the two countries is blurred by a comprehensive trade agreement, international production chains, and other economic and social ties. On the Mexican side of the border, close to 3,000 factories import components and raw materials, workers assemble goods, and most of the finished products are destined for the US.

Is this good for Mexican workers? These export-oriented industries provide nearly two million jobs, a boon for development. But it turns out that these jobs can disappear quickly: the economic health of the US has a large impact on Mexican workers’ employment status, with downturns and booms amplified through a number of channels. Although the US economy is rarely volatile, this is an important finding that could have policy implications around the world. Mexico is similar to the increasing number of countries that have encouraged export-oriented industry as a strategy for development and enacted trade reforms integrating the local economy with the world market.