China versus Mexico in the Global EPZ Industry: Maquiladoras, FDI Quality, and Plant Mortality

Abstract

Studies find that the rapid increase in Chinese exports to the United States (US) contributed to the net loss of over 800 maquilas and close to 300,000 maquila jobs from October 2000 to December 2003 and slow employment growth from 2004 to 2006. In this study, we examine the characteristics of surviving and non-surviving plants to determine if maquila losses are concentrated in low-, medium-, or high-quality segments. Based on a unique firm-level data set made up of 101 plants in five major industrial centers, we find that larger maquilas and plants producing auto parts enjoyed lower mortality rates. Controlling for these two factors, we find no statistically significant relationship between the use of technology-intensive production systems, just-in-time inventory practices, total quality management, attractive human resource management practices, and maquila survival. Contrary to much of the literature that appeared from 2000 to 2005 and statements made by Mexican policy makers, our results suggest that China’s export surge has contributed to relatively high rates of maquila mortality in low-, medium-, and high-quality maquila segments. We conclude with policy recommendations.