International Competition and Industrial Evolution: Evidence from the Impact of Chinese Competition on Mexican Maquiladoras

Abstract

Effects of the competition between the two South locations (Mexico and China) in the Northern market (U.S.) is analyzed. By employing a new plant-level data set that covers the universe of Mexican export assembly plants (maquiladoras) from 1990 to 2006 and exploiting the exogenous acceleration of Chinese imports in conjunction with the WTO accession of China, the empirical analysis reveals substantial effect of intensified Chinese competition on maquiladoras. In particular, competition from China has negative and significant impact on employment and plant growth, both through the intensive and the extensive margin, in the most unskilled labor intensive sectors of those threatened by competition from China, leading to sectoral reallocation. No major effect is found through reallocative channels within industries, but significant increases in plant productivity and skill intensity are quantified in maquiladoras attributable to competition to China. The results lend substance to field studies and anecdotal evidence on industrial upgrading in Mexican Maquiladoras in response to competition with low-wage locations such as China.