Transcript Professor Gallagher`s Powerpoint presentation

Foreign Direct Investment
and Domestic Spillovers:
Hi-tech Electronics in Guadalajara, Mexico
Kevin P. Gallagher
Department of International Relations, Boston University
Global Development and Environment Institute, Tufts University
Lyuba Zarsky
Global Development and Environment Institute, Tufts University
The Promise of FDI
• More stable form of foreign exchange
• Employment, tax revenue
• Productivity spillovers
– Backward linkages
– Human capital spillovers
– Forward linkages
• Crowding in domestic investment
Environmental Spillovers
• Transfer of cleaner technology and better
environmental management systems
• Requirements for better standards by local
suppliers
• Exports must meet demands of green consumers
and higher standards in EU, US, Japan
FDI Increases
4.5
4
3.5
FDI/GDP
3
2.5
2
1.5
1
0.5
0
1980
1985
1990
1995
2000
Largest Developing Country Recipients
(average annual inflows, 1990 to 2001)
Inflows ($US
Country
billions)
China
45.6
Brazil
12.9
Mexico
11.4
Singapore
7.2
Argentina
6.8
Bermuda
4.5
Malaysia
4.4
Poland
4.1
Chile
3.5
South Korea
3.2
Top 10 total:
Total For Developing Countries:
Top 10 share:
103.5
136.7
76%
Electronics Clusters in Mexico
Border Zone:
Mostly Audio / video
13 Computer
monitor
manufacturing.
13 TV manufacturing
Center Zone:
Western Region:
Focus on IT industry,
High tech electronics
industry,
Telecommunications &
Electronic
subassemblies.
10 Billion exported in
2002.
Home appliances
and consumer
electronics .
Electronics Clusters in Mexico
Mexicali
Tijuana
 SANYO
 SONY
 HITACHI
 MATSUSHITA
 JVC
 SAMSUNG
 PIONNER
 MITSUBISHI
 SHARP
 SANYO ELECTRODOMÉSTICOS
 PHILIPS
 CASIO
 KODAK
 CANON
 KYOCERA
 INTERNACIONAL RECTIFIER
Aguascalientes
 TEXAS INSTR.
 XEROX

SIEMENS
Guadalajara
 I.B.M
 H.P.
 TECHNICOLOR
 TELECT
 TYCO
 KODAK
 VOGT ELECTRONIC
 SIEMENS VDO
 SOLECTRON DE MEXICO
 FLEXTRONICS
 JABIL CIRCUIT
 BENCHMARK
 SANMINA-SCI




SONY
DAEWOO (SLRC)
MITSUBISHI
GOLDSTAR
Juárez
Chihuahua




MOTOROLA
ALTEL
KIOCERA
JABIL





TOSHIBA
PHILIPS
THOMSON
KENWOOD
ELECTROLUX
 ACER
 ELAMEX
 PLEXUS
Reynosa
Saltillo
 MABE
 HAMILTON
BEACH*
Torreón
 THOMSON







San Luis Potosi
 MABE GE
 MABE SANYO
 VISTAR
 VITROMATIC (2)






Querétaro
CLARION
DAEWOO
BLACK & DECKER
MABE (2)
SINGER
SIEMENS
Monterrey
PIONNER
DANFOSS COMPRESSORS
VITROMATIC (3)
MABE (2)
KODAK
NIPPON DENSO (Automotriz)
AXA YAZAKI (Automotriz)
Cuernavaca
 NEC
Querétaro








State of Mexico
MABE
BRAUN
ELECTROLUX
SUNBEAM
KOBLENZ
ERICSSON
ALCATEL/INDETEL
AMP










Puebla
 GESTAR
 SINGER
 VITROMATIC
DELCO (Automotriz)
PHILIPS
SONY
MATSUSHITA (Automotriz)
VITROMATIC
NOKIA
LUCENT TECHNOLOGIES
FUJITSU (Automotriz)
CONDURA (Automotriz)
DELNOSA (Automotriz)
State of Mexico
 PANASONIC
 ELECTROLUX
 FILTER QUEEN
 HOOVER
 IMAN
 KOBLENZ
 MABE
 PHILIPS
 SUNBEAM
 OLIVETTI
 OLIMPIA
 AUDIO & VIDEO
 ELECTRODOMESTIC
 COMPUTER EQUIPMENT
 TELECOM
 OTHER
Hi-Tech Exports and Foreign Investment in Jalisco
500
450
400
350
1994=100
300
exports
Investment
250
200
150
100
50
0
1995
1996
1997
1998
1999
2000
2001
2002
Why firms came
• Proximity to U.S
• Markets (hi-tech boom)
• NAFTA (tariffs and rules of
origin)
• PITEX and Maquila
Programs
• Favorable Exchange rate
• Guadalajara infrastructure
Backward Linkages
• 95 percent of inputs are
imported
• 80 percent decline in local
suppliers from 1985
• 97 percent of all
investment between 1994
and 2002 was foreign
• Joint R&D projects limited
• Success story:
– Electronica Pantera
Human Capital Spillovers
• Low end of
production process
– little training needed
or given
• Shift to contract
employees
• Few domestic firms
to spill over to
• Success story:
– IBM training center
and spin-offs
Forward Linkages
• Hi-tech
diffusion
relatively low
• Limited
success of
“digital
divide”
projects
National Demand as a Share of Total Sales in Mexico's IT Sector
25%
20%
15%
10%
5%
0%
1994
1995
1996
1997
1998
1999
2000
2001
2002
Environmental Spillovers
• Technology Transfer:
– Bringing EMS but not clear if in compliance
– SCI-Sanmina and Industria Limpia program
• Greening the supply chain:
– Little contact with local suppliers to begin with
– No requirements for existing suppliers
• Exporting to higher standards:
– Not in Guadalajara plants (but in plants closer to higher
regulation markets)
Why so few spillovers?
• Barriers to entry into global
supplier networks
• Incentive to import inputs
• Macroeconomic uncertainty
• Weak local capacity
• Lack of policy response
• Lack of policy space
Why firms are leaving
•
•
•
•
•
Slowdown in
U.S. demand
China’s
accession to
WTO
Overvaluation
of the peso
(wages)
Lack of local
productive
capacities
Lack of
domestic and
regional
markets
Hi-Tech Employment in Jalisco, 1995 to 2003
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
1995
1996
1997
1998
1999
2000
2001
2002
2003
2003
Preliminary Results
• Little evidence of domestic spillovers
• Spillovers that did occur were not
allocated by the market
• Evidence of foreign investment
crowding out domestic investment
• Role for public policy in steering FDI
toward development goals
Total Investment Stagnates
30
25
GFCF/GDP
20
15
10
5
0
1980
1985
1990
1995
2000
Why Weak Development
Impacts?
• Lack of domestic and regional markets
• Dynamic sectors are enclaves
• Scant governmental attention to
learning
What to do?
• Elements of a new strategy:
– Focus on domestic markets
– Invest in building domestic capacities for production and
innovation (education, R&D, infrastructure)
– Reduce domestic cost of capital and improve climate for
domestic investment without re-triggering inflation
– Develop policies to maximize spillovers from FDI
– What role for targeted industrial policy?
• What room to move?
– Constraints of global and regional trade and investment
regimes
– Inflation
Export Goods Not People?
• Annual net job creation: 79,000 per year
• New entrants into workforce: 730,000 per year
• Real wages: down 12 percent (93-2002);reach
93 levels in 2003
• Benefits: 45 percent of all new jobs are without
benefits
• Informal sector: absorbs 30 to 60 percent of the
total Mexican workforce works
• Migrants to United States: 4000,000 per year
(up from 200,000 pre-NAFTA)
Incomes Creep up but stay low
8
6
4
GDP per capita growth
2
0
1980
-2
-4
-6
-8
-10
1985
1990
1995
2000
Series1
Endogenous Productive Capacity?
Capacity for Innovation in Mexico and South Korea
Mexico
S. Korea
(average, 1995 to 2000)
Patent applications by National Firms/total patent applications
R&D expenditure/GDP
Scientists and Engineers per million persons
Science and Technological Journal Articles
Technicians in R&D per million persons
4.90%
0.36%
225
2024
172
51%
2.60%
2152
5219
576