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The Promise of FDI. More stable form of foreign exchangeEmployment, tax revenueProductivity spilloversBackward linkagesHuman capital spilloversForward linkagesCrowding in domestic investment. Environmental Spillovers. Transfer of cleaner technology and better environmental management systemsRequirements for better standards by local suppliers Exports must meet demands of green consumers and higher standards in EU, US, Japan .
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1. 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
2. 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
3. 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
6. Electronics Clusters in Mexico
9. 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
10. 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
11. 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
12. Forward Linkages Hi-tech diffusion relatively low
Limited success of “digital divide” projects
13. 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)
14. 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
15. 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
16. 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
18. Why Weak Development Impacts? Lack of domestic and regional markets
Dynamic sectors are enclaves
Scant governmental attention to learning
19. 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
21. 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)
23. Endogenous Productive Capacity?