Foreword and Acknowledgements
In a world marked by economic slowdown, ageing, migration, climate change and increasing inequality, policy makers are looking for new development paths. International debate since the crisis has called traditional economic models into question and the search is on for new approaches that can better reconcile economic growth with other social and environmental objectives. This crucial debate is focusing attention on the role that regions play in national economies, both as sources of underexploited potential and as the places where different policies can be most effectively integrated. Indeed, policy trade-offs are best addressed at the regional level, where it is often possible to identify the ways in which economic, social and environmental policies can be mutually reinforcing, rather than antagonistic, thereby optimising use of scarce public funds.
Acronyms and Abbreviations
Assessment and Recommendations
Chihuahua has benefited from Mexico’s trade policy change and its geographic position by thus creating a successful economic development model. Chihuahua sits right at the centre of the US-Mexico border sharing one-third of it, giving it direct access to both east and west coast markets in the US. Over the years, this intense international trade gave rise to one of the world’s most dynamic border communities. This advantageous geographic location was the perfect ingredient for Chihuahua to be able to benefit from three different external stimuli. First, in a closed-economy context, the Maquiladora Programme enabled tax-free offshoring operations in border municipalities, which meant that Chihuahua had a key initial advantage over the rest of the country to industrialise. Second, after two decades of successful foreign direct investment (FDI) attraction to the region, Mexico opened up to trade by accessing the General Agreement on Tariffs and Trade (GATT), bringing additional impetus to the region through offshoring operations. Third, in 1994 Mexico signed the North American Free Trade Agreement (NAFTA), which expanded FDI opportunities for Chihuahua and other border states. The region was growing at average annual growth rates exceeding 9% in the 1990s and has become the largest FDI-based manufacturing employer in the country.
Chihuahua's Economic Model and Challenges
This chapter examines the economic growth and productivity trends in Chihuahua and Mexico. It starts by showing the reader Mexico’s slowdown in economic growth and lagging productivity levels. The reader will be able to see Chihuahua’s contribution to national performance; thus, Chihuahua’s challenges are relevant not only for regional progress, but for Mexico’s overall performance. The chapter shows that Chihuahua has gone from being a region that was fast approaching OECD average levels of per capita GDP to be part of the groups of regions that can be considered as lagging and underperforming. Growth decomposition and growth-accounting techniques are used to pinpoint the main factors holding Chihuahua back from fully exploiting its growth potential. Despite being one of North America’s leading manufacturing hubs and the lead exporter in Mexico, Chihuahua’s outward development model has rendered the region vulnerable to external shocks. The chapter then analyses each of the three long-run economic growth determinants in Chihuahua and pinpoints the main challenges to improve investment, human capital and innovation levels in the state. The chapter ends with a discussion on foreign direct investment trends in the world and Chihuahua and relates multinational enterprise development with specialisation and cluster development in the region and sheds some light on the lack of integration of local firms to global-value chains.
Policies and Institutions to Enhance Economic Growth
This chapter examines federal, regional and local policies and institutions for regional development in Chihuahua. It starts by discussing the institutional framework – the international context being a border region, as well as the federal, state and municipal levels of government – in Chihuahua. The chapter continues with an analysis of the policies in place and points at the need for reforms to enhance economic growth. In particular, the chapter looks at policies for private-sector development: i) those that aim at fostering private investment, ii) those for upgrading the regulatory framework, and iii) cluster policies to link value chains. One of the central policy discussions in this chapter is the policy options that the state has, in order to strike a balance between attracting foreign direct investment and supporting local entrepreneurship. The chapter also looks at policies to develop and attract skills and talent, as well as innovation policies such as science and technology parks, the financing of innovation and the institutions for innovation. In light of Chihuahua’s vulnerability to external shocks, one of the policy options that are explored is the diversification of the economy in sectors with growth potential. The chapter ends with a discussion on the potential role of a regional development agency in Chihuahua that would allow a quadruplehelix approach to regional development with the implied involvement of the private sector, academia and civil society.
Tackling Inequality to Foster Growth
This chapter examines the interrelationship between economic and social challenges and the need to address both with regional policies that expressly look for policy complementarities between them. The chapter presents the reader with several dimensions of inequality in Chihuahua: interpersonal, regional, wage, gender and inter-ethnicity. The chapter continues with a section on insecurity trends in Chihuahua and the challenge it represents; the review argues in this chapter that insecurity is one of the systemic challenges of the region and failure to curve down crime will impinge on any economic development strategy. The chapter revises policies at the federal and state levels to reduce inter-personal, regional, ethnic and gender inequality and while recognising the progress made thus far, it argues for an integrated approach to regional policy in which synergies between economic and social policies should be sought. The chapter ends with a discussion on fiscal challenges focusing on tax autonomy, the nature of federal transfers and the need to address recent indebtedness to avoid another systemic challenge.
Going Local to Enable Complementarities
This chapter examines the role of space in allowing for policy complementarities. It argues that the best way to foster complementarities between efficiency-seeking policies (economic) and equity-seeking policies (social) is by addressing the challenges and design the policies at the local level. The chapter argues that while infrastructure is a crucial dimension of regional policy, the risk of not having an integrated approach to regional policy is that providing transport infrastructure can reduce costs, but also lead to further agglomeration and therefore a leaking-by-linking effect. The chapter continues with the urban challenges in terms of housing, sprawl, sustainability and transportation that the pattern of urbanisation has represented for Chihuahua and argues for a city-regional approach to urban planning, as well as for the use of fiscal tools to reduce vacant land, curtail sprawl and increase density. The chapter then alerts the reader to rural challenges and the way in which these have exacerbated water stress, leading to the third systemic challenge. The review looks at issues that limit rural areas’ productivity and reduce water availability such as: farm size, type of crops, subsidies to electricity, lack of financing and outdated modes of land and water management. The chapter ends with a discussion on water governance and the need to allow for more local regulation among other recommendations.
Annex A. Growth Accounting
Economic growth can take place by increasing the amount and types of labour and capital used in production, as well as by improving overall efficiency in the way factors of production are employed, i.e. higher total factor productivity (TFP). Growth accounting means breaking down growth of GDP into the contribution of labour input, capital input and TFP. The growth accounting approach is based on the microeconomic theory of production and directly related to the calculation of TFP growth, measured by deducting from output growth, the growth of labour and capital inputs.
Annex B. Cross-Border Economic Co-operation in Chihuahua
Over the course of the past decades, there have been various forms of cross-border development programmes in different parts of the world. They include, among others, the European Territorial Co-operation (formerly called the INTERREG programmes) launched in the European Union (EU), the Indonesia-Malaysia-Singapore Growth Triangle (IMS-GT, formerly entitled the "Singapore-Johor-Riau Growth Triangle"), the Greater Tumen Initiative (GTI, formerly known as the Tumen River Area Development Programme, or TRADP), China’s Special Economic Zones (SEZs), and the US-Mexico Border Industrialisation Programme (BIP) (called "maquiladoras" in Mexico). The creation and organisation of these cross-border development programmes have provided many valuable times-series data and other specific information. Obviously, this will help scholars and practitioners involved in cross-border co-operation to assess the effectiveness of such instruments, and eventually derive useful policy implications.
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