Economic Integration Mexico California 2013

1. Analyzing the Economic Integration of MexicoAnalyzing the Economic Integration of Mexico
and California 2013and California 2013
Alejandro Díaz-Bautista,Alejandro Díaz-Bautista, Ph.D.Ph.D.
Professor of International Economics at Colef
and
Distinguished Researcher
National Council of Science and Technology
adiazbau@gmail.com
Presentation for the California State Controller’s Council of Economic
Advisors Meeting. Los Angeles, California, Monday, June 24 at 9:00
a.m.

2. U.S.-Mexico Relations, a ShiftU.S.-Mexico Relations, a Shift
from Security to Economyfrom Security to Economy
 U.S.-Mexican relations are strategicallyU.S.-Mexican relations are strategically
important to both countries, and Mexico'simportant to both countries, and Mexico's
period of transition has createdperiod of transition has created
opportunities for each to reshape theopportunities for each to reshape the
partnership. And although U.S. mediapartnership. And although U.S. media
attention has focused primarily on bilateralattention has focused primarily on bilateral
security issues, namely cooperation insecurity issues, namely cooperation in
Mexico's drug war, the Pena NietoMexico's drug war, the Pena Nieto
administration is working with Washingtonadministration is working with Washington
to re-orient the cross-border conversationto re-orient the cross-border conversation
to one centered primarily on mutualto one centered primarily on mutual
economic possibility.economic possibility.

3. U.S.-Mexico Relations, a ShiftU.S.-Mexico Relations, a Shift
from Security to Economyfrom Security to Economy
 Labor and education overhauls passedLabor and education overhauls passed
through the legislative branch relativelythrough the legislative branch relatively
easily, and banking reforms intended toeasily, and banking reforms intended to
broadly increase access to credit are set tobroadly increase access to credit are set to
be proposed once the mexican legislaturebe proposed once the mexican legislature
reconvenes in September. Thereconvenes in September. The
administration still has an aggressive to-administration still has an aggressive to-
do list remaining, with planned overhaulsdo list remaining, with planned overhauls
ranging from the telecommunications andranging from the telecommunications and
energy sectors to issues such as taxation.energy sectors to issues such as taxation.
The majority of the reforms has beenThe majority of the reforms has been
structural in nature and driven bystructural in nature and driven by
economic issues.economic issues.

4. U.S.-Mexico Relations, a ShiftU.S.-Mexico Relations, a Shift
from Security to Economyfrom Security to Economy
 Domestic political factors will determineDomestic political factors will determine
the success of the pending overhauls. Butthe success of the pending overhauls. But
the labor reform could improve bilateralthe labor reform could improve bilateral
commerce and investment with Californiacommerce and investment with California
and all the United States, as would aand all the United States, as would a
successful liberalization of the country'ssuccessful liberalization of the country's
energy sector in the coming years.energy sector in the coming years.

5. U.S.-Mexico Relations, a ShiftU.S.-Mexico Relations, a Shift
from Security to Economyfrom Security to Economy
 Economics is at the center of the relationEconomics is at the center of the relation
between both countries in 2013.between both countries in 2013.
 The United States is Mexico’s largestThe United States is Mexico’s largest
trading partner, and the two countriestrading partner, and the two countries
engaged in nearly 500 billion dollars worthengaged in nearly 500 billion dollars worth
of trade in 2012. Much of that trade is inof trade in 2012. Much of that trade is in
what are known as intermediate inputs,what are known as intermediate inputs,
referring to semi-finished U.S. goods thatreferring to semi-finished U.S. goods that
are finalized with Mexican resources, aare finalized with Mexican resources, a
process seen as increasing theprocess seen as increasing the
competitiveness of both countries.competitiveness of both countries.

6. United States - Mexico Border States
Description:
• 10 border states.
• Nearly 2,000-mile (3,169 km or 1,969 miles) of international
border.
• Population: more than 83 million.

7. The United States- Mexico border regionThe United States- Mexico border region
 The ten Border States represent the largest binational regional economy inThe ten Border States represent the largest binational regional economy in
the world, with over 83 million people and a combined economy rankedthe world, with over 83 million people and a combined economy ranked
estimated at number four in the world in economic terms.estimated at number four in the world in economic terms.
 This region has 51 border crossings, 32 bridges and seven federal railwayThis region has 51 border crossings, 32 bridges and seven federal railway
routes, placing it as the busiest border in the world, with over 350 millionroutes, placing it as the busiest border in the world, with over 350 million
people cross the border each year.people cross the border each year.
 The economic slowdown and unemployment are among the issues thatThe economic slowdown and unemployment are among the issues that
currently affect the people on both sides of the border.currently affect the people on both sides of the border.
 The state of Arizona had an unemployment rate of 9.4 percent, Texas, 8.4The state of Arizona had an unemployment rate of 9.4 percent, Texas, 8.4
percent; New Mexico, 6.7 percent, and California, 12 percent (thepercent; New Mexico, 6.7 percent, and California, 12 percent (the
highest), according to the figures from July 2011, compared to anhighest), according to the figures from July 2011, compared to an
unemployment rate of 9.1 percent in the United States during July 2011.unemployment rate of 9.1 percent in the United States during July 2011.
 In July 2011, the northern border states of Mexico were also showing highIn July 2011, the northern border states of Mexico were also showing high
unemployment rates. The state of Baja California had an unemploymentunemployment rates. The state of Baja California had an unemployment
rate of 5.05 percent, Sonora, 5.65 percent; Chihuahua, 6.81 percent;rate of 5.05 percent, Sonora, 5.65 percent; Chihuahua, 6.81 percent;
Coahuila, 6.27 percent; Nuevo Leon, 6.49 percent; and Tamaulipas, 8.81Coahuila, 6.27 percent; Nuevo Leon, 6.49 percent; and Tamaulipas, 8.81
percent (the highest).percent (the highest).

8. The United States MexicoThe United States Mexico
Border Unemployment (2012)Border Unemployment (2012)
 Official figures from the National Institute of Statistics andOfficial figures from the National Institute of Statistics and
Geography (INEGI) show that during the second quarter of 2012,Geography (INEGI) show that during the second quarter of 2012,
the northern border states in Mexico continue to show highthe northern border states in Mexico continue to show high
unemployment rates. Chihuahua had a 7% unemployment rate,unemployment rates. Chihuahua had a 7% unemployment rate,
Tamaulipas with 6%; Sonora with 5.4%, Coahuila with 5.5%,Tamaulipas with 6%; Sonora with 5.4%, Coahuila with 5.5%,
Nuevo Leon with 6.4% , and Baja California with a 6.1%Nuevo Leon with 6.4% , and Baja California with a 6.1%
unemployment rate. On average, the unemployment rate of theunemployment rate. On average, the unemployment rate of the
northern border states of Mexico is estimated close to 6.06%northern border states of Mexico is estimated close to 6.06%
during the second quarter of 2012.during the second quarter of 2012.
 Furthermore, at the end of July 2012, the southern U.S. borderFurthermore, at the end of July 2012, the southern U.S. border
states also suffered with high unemployment rates: California withstates also suffered with high unemployment rates: California with
10.7%, Arizona with 8.3%, 6.6% for New Mexico, and Texas with10.7%, Arizona with 8.3%, 6.6% for New Mexico, and Texas with
an unemployment rate of 7.2 percent. On average, thean unemployment rate of 7.2 percent. On average, the
unemployment rate of the southern border states of the Unitedunemployment rate of the southern border states of the United
States is estimated at 6.06% during the month of July 2012.States is estimated at 6.06% during the month of July 2012.

9. The United States MexicoThe United States Mexico
Border Unemployment (2013)Border Unemployment (2013)
 Official figures from the National Institute of Statistics andOfficial figures from the National Institute of Statistics and
Geography (INEGI) show that during April 2013, Baja California’sGeography (INEGI) show that during April 2013, Baja California’s
unemployment rate reached a level of 4.47%.unemployment rate reached a level of 4.47%.
 Mexico’s unemployment rate during April 2013 was estimated atMexico’s unemployment rate during April 2013 was estimated at
5.14%.5.14%.
 During April 2013, California’s unemployment rate was 9.0%,During April 2013, California’s unemployment rate was 9.0%,
according to the bureau of labor statistics. California ranked withaccording to the bureau of labor statistics. California ranked with
the 4the 4thth
highest unemployment at the state level, just behindhighest unemployment at the state level, just behind
Nevada, Illinois and Mississippi. The national unemployment rateNevada, Illinois and Mississippi. The national unemployment rate
was 7.5 percent.was 7.5 percent.
 The April 2013 California unemployment rate of 9 percentThe April 2013 California unemployment rate of 9 percent
represents an important drop from the 10.7 percent rate duringrepresents an important drop from the 10.7 percent rate during
April of 2012.April of 2012.

10. GDP % Growth rates
Baja California and California,
Mexico and the United States
Economic Integration
* Sources: INEGI, Oxford Economic Forecasting, Bureau of Economic Analysis.

11. The United States MexicoThe United States Mexico
BorderBorder
 People cross the United StatesPeople cross the United States
Mexico border every day to doMexico border every day to do
business, go shopping, visit familybusiness, go shopping, visit family
members, or simply to enjoy eachmembers, or simply to enjoy each
other’s tourism.other’s tourism.
 This results in around 350 millionThis results in around 350 million
crossings and almost $400 billion incrossings and almost $400 billion in
trade each year, making it the mosttrade each year, making it the most
important border region in the world.important border region in the world.

12. California Mexico TradeCalifornia Mexico Trade
 Mexico continues to be California's number oneMexico continues to be California's number one
export market. California exports to Mexico $26.3export market. California exports to Mexico $26.3
billion in 2012. Mexico purchases over 16 percentbillion in 2012. Mexico purchases over 16 percent
of all California exports.of all California exports.
 California's exports to Mexico are driven byCalifornia's exports to Mexico are driven by
computers and transportation equipment, whichcomputers and transportation equipment, which
account for 34.1 percent of all California exportsaccount for 34.1 percent of all California exports
to Mexico.to Mexico.

13. Total exports of California by trading partner
(Millions of dollars)
The graphs shows the close economic relationship between California and Mexico.
Considering all the trade between Mexico and California in 2011, Baja California reached 50.6% of total
exports by the states of Mexico.
Mexico is California’s number one export market. The state of Baja California is California’s 4th
export
market.
Source: Bureau of Transportation and Statistics.
Distribution of total California
exports by States of Mexico in
2011
(percentages)
Source: Bureau of Transportation
and Statistics and INEGI (enero a
octubre.).
California Mexico TradeCalifornia Mexico Trade

14. Baja California and California Economic IntegrationBaja California and California Economic Integration
 Economic Integration can also be seen at the regional level.Economic Integration can also be seen at the regional level.
 During 2010, the official data shows that the number ofDuring 2010, the official data shows that the number of
northbound crossers from Baja California to Californianorthbound crossers from Baja California to California
reached 61,105,484 people, the majority of whom, crossedreached 61,105,484 people, the majority of whom, crossed
in personal vehicles. Baja California residents constitute anin personal vehicles. Baja California residents constitute an
important component in the economy of communities andimportant component in the economy of communities and
counties on the U.S. side of the border, like San Diegocounties on the U.S. side of the border, like San Diego
County.County.
 These visitors from Baja California enter the U.S. regularlyThese visitors from Baja California enter the U.S. regularly
for shopping, tourism, work, and socialization with familyfor shopping, tourism, work, and socialization with family
and friends. It’s a well known fact that cross border visitorsand friends. It’s a well known fact that cross border visitors
from Mexico have a significant economic impact on U.S.from Mexico have a significant economic impact on U.S.
communities and counties.communities and counties.

15. Economic Impacts and Expenditures
 Shopping is the primary reason to cross into the U.S. for
Baja California residents. Depending on the study, 42 to
68% of border crossers identify shopping as the primary
reason for the visit into Southern California. Other reasons
are social in nature, like visiting family and friends, or are
work related.
 During 2010, around 74 percent of crossers entered
California in their private vehicles, since a car allows them
freedom of movement between different shopping locations
in the U.S. as well as enough room to handle the volume of
their purchases.
 The estimated average daily expenditures reported by Baja
California visitors into San Diego County and California in
various studies ranges from US $140 per trip to $300 per
trip. The current estimation uses an average amount of
expenditures per trip of $240 per trip as the base case
scenario.

16. Annual Retail Sales in California byBaja California Border Crossers
(Economic Growth Scenario)
0
1000000000
2000000000
3000000000
4000000000
5000000000
6000000000
7000000000
8000000000
9000000000
2010 2011 2012 2013 2014
year
Dollars
Low Spend. Case
High Spend. Case
Base Spend. Case
El Buen Fin Program
BEZ

17. California Economic Impacts
 The California and Baja California border region remains an
example of social and economic integration in North
America, where cross-border shopping is only one aspect of
that economic reality in the border region.
 Mexican citizens cross frequently into the U.S. to shop,
work, dine, vacation, and visit friends and family. What
they spend on those visits results in a key contribution to
local border economies in California.
 The results reveal annual retail sales by Baja California
Cross Border Visitors in the range of 5.9 to 6.8 billion
dollars along the U.S.-Mexico border, depending on the
complete implementation of the Border Economic Zone
(BEZ) in Baja California and the “El Buen Fin Program”.
 The base case scenario shows that Baja California
consumer and economic drain into the U.S. market is
estimated at around 5.9 billion dollars in 2012 and 6.2
billion dollars in 2014, with the implementation of the
Border Economic Zone (BEZ).

18. Top 10 States Exporting toTop 10 States Exporting to
Mexico, 2009 to 2011.Mexico, 2009 to 2011.

19. U.S. Mexico Trade in 2012U.S. Mexico Trade in 2012
 Total bilateral trade between the U.S. and Mexico has returned toTotal bilateral trade between the U.S. and Mexico has returned to
the levels before the economic downturn and crisis.the levels before the economic downturn and crisis.
 In 2011, Mexico and the United States had almost 461 billion dollarsIn 2011, Mexico and the United States had almost 461 billion dollars
in trade in goods, which represents more than 1,250 million dollarsin trade in goods, which represents more than 1,250 million dollars
or 1.25 billion in trade crossing the border in both directions everyor 1.25 billion in trade crossing the border in both directions every
day.day.
 The economic relationship also adds 39 billion dollars in serviceThe economic relationship also adds 39 billion dollars in service
trade.trade.
 Mexico continues to export more of their products and services toMexico continues to export more of their products and services to
the United States than any other country in the world. The Unitedthe United States than any other country in the world. The United
States remains the main destination of Mexican goods and services.States remains the main destination of Mexican goods and services.
 The trade relationship between Mexico and the United States notThe trade relationship between Mexico and the United States not
only is 'back' but it is getting stronger between Mexico and theonly is 'back' but it is getting stronger between Mexico and the
United States in 2012-2013.United States in 2012-2013.

20. California – Baja CaliforniaCalifornia – Baja California
Important ProjectsImportant Projects
 The bi-national terminal project is expected to be builtThe bi-national terminal project is expected to be built
immediately across from the US/Mexican border fence, on USimmediately across from the US/Mexican border fence, on US
land, so that Tijuana International Airport will serve as reliefland, so that Tijuana International Airport will serve as relief
airport for the highly congested San Diego Airport. The project willairport for the highly congested San Diego Airport. The project will
also include parking, check-in counters, customs offices and is toalso include parking, check-in counters, customs offices and is to
link via a bridge crossing the border into Tijuana airport.link via a bridge crossing the border into Tijuana airport.
 The development of a privately owned cross-border facility -The development of a privately owned cross-border facility -
intended to be used by ticketed airline passengers paying a toll tointended to be used by ticketed airline passengers paying a toll to
cross directly between San Diego and Tijuana via a 525-footcross directly between San Diego and Tijuana via a 525-foot
pedestrian bridge linking the Airport to a large terminal in Otaypedestrian bridge linking the Airport to a large terminal in Otay
Mesa - involves on the U.S. side construction of the terminal inMesa - involves on the U.S. side construction of the terminal in
Otay Mesa and the bi-national bridge, and on the Mexican sideOtay Mesa and the bi-national bridge, and on the Mexican side
adapting Tijuana Airport's facilities so that they will connect to theadapting Tijuana Airport's facilities so that they will connect to the
bridge (the process of which has already begun).bridge (the process of which has already begun).
 The project is hoped to be completed by June 2014.The project is hoped to be completed by June 2014.

21. California – Baja CaliforniaCalifornia – Baja California
Important ProjectsImportant Projects
 The increasing demand in California for electricity from renewable energy is creatingThe increasing demand in California for electricity from renewable energy is creating
opportunities for developers to build projects along the Baja peninsula in Mexico andopportunities for developers to build projects along the Baja peninsula in Mexico and
then export the electricity across the border into California.then export the electricity across the border into California.
 A number of projects are already under development with several developers havingA number of projects are already under development with several developers having
begun to secure rights in the La Rumorosa region and acquire the requisite permitsbegun to secure rights in the La Rumorosa region and acquire the requisite permits
to generate and export power.to generate and export power.
 California has one of the most ambitious renewable portfolio standards, or RPSCalifornia has one of the most ambitious renewable portfolio standards, or RPS
program, in the nation.program, in the nation.
 Electric utilities in California are required to increase procurement from eligibleElectric utilities in California are required to increase procurement from eligible
renewable energy resources by at least 1% of their retail sales annually, until theyrenewable energy resources by at least 1% of their retail sales annually, until they
reach 20% by 2010 and 33% by 2020.reach 20% by 2010 and 33% by 2020.
 Although there are numerous projects being developed in state, these targets willAlthough there are numerous projects being developed in state, these targets will
still be difficult to meet and, consequently, there are opportunities for out-of-statestill be difficult to meet and, consequently, there are opportunities for out-of-state
resources to assist California in reaching these targets.resources to assist California in reaching these targets.

22. California – Baja CaliforniaCalifornia – Baja California
Important ProjectsImportant Projects
 The proposal for San Diego and Tijuana to jointlyThe proposal for San Diego and Tijuana to jointly
host the Summer Olympics in 2024 is still alive.host the Summer Olympics in 2024 is still alive.
 There is a promising path forward if both citiesThere is a promising path forward if both cities
work together. The two cities could then seek towork together. The two cities could then seek to
move forward as co-hosts.move forward as co-hosts.
 San Diego has proved that it can produce top-San Diego has proved that it can produce top-
notch mega-events. And Mexico, has hosted thenotch mega-events. And Mexico, has hosted the
Olympics before.Olympics before.
 The expected boost to the regional economyThe expected boost to the regional economy
would be in the billions of dollars.would be in the billions of dollars.

23. Analyzing the Economic Integration of MexicoAnalyzing the Economic Integration of Mexico
and California 2013and California 2013
Alejandro Díaz-Bautista,Alejandro Díaz-Bautista, Ph.D.Ph.D.
Professor of International Economics at Colef
and
Distinguished Researcher
National Council of Science and Technology
adiazbau@gmail.com
Presentation for the California State Controller’s Council of Economic
Advisors Meeting. Los Angeles, California, Monday, June 24 at 9:00
a.m.