Local and global determinants of labour employment in the Mexican maquila industry: a bounds testing co-integration analysis

During the last five years the Mexican maquila industry suffered a slowing of the rapid growth experienced during the nineties. This industry s expansion has been linked to USA foreign direct investment (fdi). Additionally, China has become a major receptor of USA investment for the production and export of manufacturing goods. The study estimates the impact of the industrial activity of the USA and China on employment demand in the maquila industry of the Northern border states of Mexico. Using data on industrial activity, real hourly wages and the real exchange rate as a proxy of Mexican competitiveness, an autoregressive distributed lag co-integration model is developed. The results show that the industrial production of China is having a negative effect on maquila employment in the long run, while low Mexican wages and the exchange rate tend to encourage maquila activity.