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posted on 23 September 2017

Mexico's Growing Role In The Auto Industry Under NAFTA: Who Makes What And What Goes Where

from the Chicago Fed

-- this post authored by Thomas H. Klier and James M. Rubenstein

Mexico has become one of the world’s leading producers and exporters of motor vehicles, although it has no automakers of its own. During the more than two decades under the North American Free Trade Agreement (NAFTA, entered into by the United States, Canada, and Mexico),

Mexico’s light vehicle production more than tripled - from 1.1 million units in 1994 to nearly 3.5 million units in 2016. Moreover, Mexico’s light vehicle exports increased from 579,000 to 2.8 million units during the same period.1 By 2016, motor vehicle assembly and parts plants employed 735,472 workers in Mexico.2 Mexico is the low-wage country among NAFTA partners. Over the period 2007 - 14, on average, wages in motor vehicle assembly represented around one-fifth of those in the United States and wages in the production of motor vehicle parts about one-eighth.3 According to one 2016 news article on trade trends, after a recent growth spurt, the automotive sector now represents 25 percent of Mexico’s manufacturing exports and over 3 percent of the country’s gross domestic product (GDP).

In this article, we explore the impact of NAFTA on Mexico’s motor vehicle industry - specifically, on Mexico’s integration into North America’s automotive industry and the subsequent increase in intra-industry trade in automobiles.5 The auto industry has undergone dramatic changes over the past 20-plus years. First, we provide a brief summary of the history of auto production and related trade policies in Mexico before NAFTA. Then we provide a detailed analysis of Mexico’s light vehicle production and exports from 1990 through 2016. Our analysis shows how Mexico has become an integral part of North America’s motor vehicle industry. In addition to aggregated industry-wide statistics, we are able to draw on data that identify the specific country of sale for vehicles produced in Mexico. These data are available on an annual basis from 2005 through 2014. Finally, we discuss how the observed trends in Mexico’s light vehicle production and trade have affected the spatial distribution of auto production within Mexico and across North America. We show that as in the United States, the motor vehicle industry has agglomerated in Mexico.

Mexico has a long history of motor vehicle production by international automakers. The first entrant was Ford, which began to assemble Model Ts in Mexico City in 1925.6 General Motors (GM) and Chrysler built their first assembly plants in Mexico during the 1930s (Werner, 1993). By 1960, a dozen companies were assembling vehicles in Mexico and supplying most of the domestic market (Klier and Rubenstein, 2013b; and Moreno Brid, 1992, p. 260).

[click on image below to continue reading]

Source

http://app.frbcommunications.org/e/er?s=1064 &lid=4835 &elqTrackId=3aec8b741d384ac981c7e851426b494a &elq=5973c38addab48b997b71151dce0ce83 &elqaid=12231&elqat=1

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