NAFTA pumps dollars into Texas economy, but at expense of border cities, economist says

Wednesday, September 17, 2003

In the nearly 10 years since the North American Free Trade Agreement became effective in Canada, Mexico and the United States, retail sales decreased — often drastically — in many of Texas’ border cities with Mexico, according to a University of North Texas economist.However, NAFTA has also pumped $126 billion in constant dollars — money that doesn’t account for inflation as a cause of more dollars — into the Texas economy during the last three years, he adds. Dr. David Molina, director of UNT’s Center for Inter-American Studies and an associate professor of economics, studied the impact of NAFTA on four metropolitan statistical areas, or MSAs, in the Texas border: Brownsville-Harlingen-San Benito; McAllen-Edinburg-Mission; Laredo; and El Paso. These areas historically relied on Mexican citizens to cross the border and buy American goods in their stores. Signed by President George Bush in December 1992 and approved by the U.S. Congress in November 1993, NAFTA eliminated duty taxes on half of all U.S. goods shipped and Mexico and is gradually phasing out other tariffs, as well as removing restrictions for U.S. companies to do business in Canada and Mexico. Molina compared retail sales in constant dollars generated in the four MSAs from 1989 to 2001.Laredo had the greatest drop in per capita retail sales, from $9,131 in1989 to $6,839 in 2001. Molina says that the devaluation of the peso in 1995, not the start of NAFTA, could explain the decrease.However, he points out that while Laredo’s retail sales in 1995 were 64 percent of the amount in 1994, NAFTA’s first year, the percentage had risen to around 84 percent by 2001. The retail sales for all of the other MSAs, meanwhile, were at the same level in 2001 as they were in 1994.“If the peso devaluation was the cause of the drop in retail sales, then none of the MSAs would have recovered by 2001,” Molina says. “Laredo has typically been a city where consumers from nearby Monterrey — the third largest city in Mexico — have come to shop. The large drop in retail sales may be attributed to the opening of U.S. retail outlets, such as Wal-Mart, in Mexico. In fact, the Wal-Marts in Monterrey and Mexico City were the largest Wal-Marts in the world at the time of their opening.”He adds that in all of the MSAs in the Texas border, the ratio of per capita retail sales to per capita personal income has been greater than the state average, but is slowly paralleling the state average. “NAFTA has clearly changed the behavior of Mexican consumers in that they no longer need to cross the international bridge to do their shopping,” Molina says.Molina also compared the percentage of exports to Mexico for the total United States and for five regions of the United States — the Northeast, the Midwest, the South, the West, and the Border — from 1988 to 2002. The Border region includes California, Arizona, New Mexico and Texas.The percentage of exports to Mexico for the total United States almost doubled between 1991, the year before NAFTA was signed by Bush, and 2002, from 7.95 percent to 14.17 percent. The Border region had the highest percentage increase — 18.99 in 1991 to 30.34 in 2002. But Molina says all of the regions showed increases in percentage points during this period, from the high of more than 11 points for the Border to a low of .39 for the West region.Molina also divided each region into two or three divisions consisting of states. For the Border region, Texas was divided from California, Arizona and New Mexico.With the exception of the Mountain division of the West region, which includes Colorado, Idaho, Montana, Nevada, Utah and Wyoming, all divisions showed increases in their percentages of exports to Mexico from 1991 to 2002. The percentage in Texas alone increased from 32.94 to 43.66 — the largest increase for any division.Molina points out that the Texas economy is the only state economy that would be likely to notice any impact resulting from a sudden drastic change in the amount of its exports to Mexico.“Nonetheless, exports to Mexico have, for all divisions, come to account for a larger percentage of gross state products,” he says.

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