Page 1

The value of goods flowing through the land ports of entry in the San Diego customs district continues to grow far faster than the rates of growth of the regional economy. During the first eight months of this year, imports through the land ports hit $11.3 billion, while exports totaled $7.8 billion. These figures represent a 22 percent and 20 percent increase in imports and exports over the same period in 1999.

While the volume and composition of trade flows do not reveal the details of production in the border region, they do reflect a very strong growth in manufacturing in all the states along both sides of the U.S.-Mexico border. This issue of the Cross-Border Economic Bulletin examines the statistics on cross-border flows in the San Diego customs district and briefly discusses some of their impacts on the regional economy. In particular:

• Trade flows through land ports of entry in the San Diego customs district are large and growing rapidly.

• The Otay Mesa port of entry is the third busiest land port along the U.S./Mexico border.

• Trade flows are related to the fact that the growth of the manufacturing sector in every Mexican and U.S. border state is faster than their national averages.

• The opening of U.S./Mexico trade has provided an incentive for manufacturers to locate near the border.

• Rapid growth in manufacturing and trade has created tensions between urban congestion and the economic incentive to concentrate production and trade in a few places, leading to large unmet needs for infrastructure investment.

In the San Diego customs district, the U.S./Mexico trade moves through seven ports of entry. From east to west, they are: Andrade, Calexico-East, Calexico, Tecate, Otay Mesa, San Ysidro and San Diego. The port of San Diego is the only one not focused exclusively on trade with Mexico and is excluded from the charts in this report.

Since these ports serve a wide geographical area as entry and exit points to Mexico, trade flows are not limited to goods produced or sold in San Diego and Imperial Counties (see the Cross-Border Economic Bulletin, August 2000, for an explanation). Nevertheless, the flows are not completely divorced from local production, and they also tell us a great deal about the growing infrastructure needs of the region.

In 1999, trade through the six ports on the border was $15.1 billion in imports and $10.2 billion in exports (Chart 1). This represents an increase in imports of 136 percent since 1994, and an increase in exports of 94 percent.

Grouped by region, the combined volume of the San Ysidro and Otay Mesa ports is about twice the volume of the combined Calexico-Calexico-East ports (Chart 2). Otay Mesa by itself ranks number three in the total trade volume (exports plus imports). Laredo, Texas, is by far the busiest port of entry, and El Paso, Texas, is second (Chart 3).

For the year to date in 2000 (January-August), growth in the volume of trade has continued, with imports from Mexico into the San Diego customs district up 22 percent over the same period in 1999, and exports to Mexico up 20 percent. Exports in 2000 are outpacing their 14 percent per year average increase from 1994 to 1999, while imports are about the same as their 21.5 percent per year average growth over the same period. In the San Diego customs district, Calexico and the new port at Calexico-East have seen the fastest growth in their volume of trade (Chart 4).

Manufacturing growth in Mexican and U.S. border states

Trade flows along the entire U.S.-Mexico border are increasing rapidly. Given that trade passing through U.S. ports is exclusively goods and not services, it is representative of the increase in manufacturing production that has been under way for some time in both northern Mexico and the U.S. southwest. In Mexico's case, the switch from inward-oriented economic strategies to outward-oriented strategies in the mid-1980s opened up the northern tier of states to increased manufacturing, and allowed firms to reduce transport costs by locating next to the U.S. market. Prior to then, Mexico City was the largest market for Mexican-based producers, so manufacturing tended to agglomerate around the capital. Since then, every Mexican border state's manufacturing sector has grown faster than the national average (Chart 5).

Similarly, the presence of an open Mexican market has probably had a feedback effect on U.S.-based manufacturers. The strength of the feedback effect, or other effects on U.S.- based production units, has not been measured. Nevertheless, the fact that every U.S. border state has expanded its manufacturing sector faster than the U.S. national average seems more than coincidental (Chart 6).

A new economy with new tensions

Growth in the volume of trade flows and growth in manufacturing require new investments in local infrastructure. It has become commonplace to point this out, but it bears repeating. In Mexico's case, the congestion effects of population growth, supported by the availability of jobs in the manufacturing sector, is a much greater threat to the long-term sustainability of regional manufacturing than are wage increases or tax uncertainties. Inadequate public and private investment in housing, water, power, transportation infrastructure and environmental remediation will create bottlenecks for many firms and impose hard resource constraints that may exceed the problems posed by rising wages. In the U.S. case, many of the same problems are present, largely because, as in Mexico, the border region has been overwhelmed by the relatively sudden (in historical terms) increase in economic activity ignited by the opening of the Mexican economy.

As serious as the infrastructure shortage and environmental problems may be, it is useful to remember that too many jobs and too much economic activity are vastly preferable to the opposite. The challenge, however, is to take advantage of the growth opportunities offered and to use them to raise our living standards and improve the quality of life in the region. Given the strong economic incentives for firms to locate production near the border, and for U.S. companies to engage in production sharing with Mexican affiliates, growth in trade and manufacturing in the border states is likely to continue -- at least until the congestion effects of growth begin to choke it off. A serious public/private response to the deficits in our regional infrastructure would be a smart move toward taking advantage of the prosperity we have been offered.

The Cross-Border Economic Bulletin is prepared monthly by Dr. Jim Gerber, professor of economics at San Diego State University. It is underwritten by Concert, a global venture of AT&T and BT.


	Cross-Border Economic Bulletin - December 2000 The trade flow through San Diego continues to expand The value of goods flowing through the land ports of entry in the San Diego customs district continues to grow far faster than the rates of growth of the regional economy. During the first eight months of this year, imports through the land ports hit $11.3 billion, while exports totaled $7.8 billion. These figures represent a 22 percent and 20 percent increase in imports and exports over the same period in 1999. While the volume and composition of trade flows do not reveal the details of production in the border region, they do reflect a very strong growth in manufacturing in all the states along both sides of the U.S.-Mexico border. This issue of the Cross-Border Economic Bulletin examines the statistics on cross-border flows in the San Diego customs district and briefly discusses some of their impacts on the regional economy. In particular: • Trade flows through land ports of entry in the San Diego customs district are large and growing rapidly. • The Otay Mesa port of entry is the third busiest land port along the U.S./Mexico border. • Trade flows are related to the fact that the growth of the manufacturing sector in every Mexican and U.S. border state is faster than their national averages. • The opening of U.S./Mexico trade has provided an incentive for manufacturers to locate near the border. • Rapid growth in manufacturing and trade has created tensions between urban congestion and the economic incentive to concentrate production and trade in a few places, leading to large unmet needs for infrastructure investment. In the San Diego customs district, the U.S./Mexico trade moves through seven ports of entry. From east to west, they are: Andrade, Calexico-East, Calexico, Tecate, Otay Mesa, San Ysidro and San Diego. The port of San Diego is the only one not focused exclusively on trade with Mexico and is excluded from the charts in this report. Since these ports serve a wide geographical area as entry and exit points to Mexico, trade flows are not limited to goods produced or sold in San Diego and Imperial Counties (see the Cross-Border Economic Bulletin, August 2000, for an explanation). Nevertheless, the flows are not completely divorced from local production, and they also tell us a great deal about the growing infrastructure needs of the region. In 1999, trade through the six ports on the border was $15.1 billion in imports and $10.2 billion in exports (Chart 1). This represents an increase in imports of 136 percent since 1994, and an increase in exports of 94 percent. Grouped by region, the combined volume of the San Ysidro and Otay Mesa ports is about twice the volume of the combined Calexico-Calexico-East ports (Chart 2). Otay Mesa by itself ranks number three in the total trade volume (exports plus imports). Laredo, Texas, is by far the busiest port of entry, and El Paso, Texas, is second (Chart 3). For the year to date in 2000 (January-August), growth in the volume of trade has continued, with imports from Mexico into the San Diego customs district up 22 percent over the same period in 1999, and exports to Mexico up 20 percent. Exports in 2000 are outpacing their 14 percent per year average increase from 1994 to 1999, while imports are about the same as their 21.5 percent per year average growth over the same period. In the San Diego customs district, Calexico and the new port at Calexico-East have seen the fastest growth in their volume of trade (Chart 4). Manufacturing growth in Mexican and U.S. border states Trade flows along the entire U.S.-Mexico border are increasing rapidly. Given that trade passing through U.S. ports is exclusively goods and not services, it is representative of the increase in manufacturing production that has been under way for some time in both northern Mexico and the U.S. southwest. In Mexico's case, the switch from inward-oriented economic strategies to outward-oriented strategies in the mid-1980s opened up the northern tier of states to increased manufacturing, and allowed firms to reduce transport costs by locating next to the U.S. market. Prior to then, Mexico City was the largest market for Mexican-based producers, so manufacturing tended to agglomerate around the capital. Since then, every Mexican border state's manufacturing sector has grown faster than the national average (Chart 5). Similarly, the presence of an open Mexican market has probably had a feedback effect on U.S.-based manufacturers. The strength of the feedback effect, or other effects on U.S.- based production units, has not been measured. Nevertheless, the fact that every U.S. border state has expanded its manufacturing sector faster than the U.S. national average seems more than coincidental (Chart 6). A new economy with new tensions Growth in the volume of trade flows and growth in manufacturing require new investments in local infrastructure. It has become commonplace to point this out, but it bears repeating. In Mexico's case, the congestion effects of population growth, supported by the availability of jobs in the manufacturing sector, is a much greater threat to the long-term sustainability of regional manufacturing than are wage increases or tax uncertainties. Inadequate public and private investment in housing, water, power, transportation infrastructure and environmental remediation will create bottlenecks for many firms and impose hard resource constraints that may exceed the problems posed by rising wages. In the U.S. case, many of the same problems are present, largely because, as in Mexico, the border region has been overwhelmed by the relatively sudden (in historical terms) increase in economic activity ignited by the opening of the Mexican economy. As serious as the infrastructure shortage and environmental problems may be, it is useful to remember that too many jobs and too much economic activity are vastly preferable to the opposite. The challenge, however, is to take advantage of the growth opportunities offered and to use them to raise our living standards and improve the quality of life in the region. Given the strong economic incentives for firms to locate production near the border, and for U.S. companies to engage in production sharing with Mexican affiliates, growth in trade and manufacturing in the border states is likely to continue -- at least until the congestion effects of growth begin to choke it off. A serious public/private response to the deficits in our regional infrastructure would be a smart move toward taking advantage of the prosperity we have been offered. The Cross-Border Economic Bulletin is prepared monthly by Dr. Jim Gerber, professor of economics at San Diego State University. It is underwritten by Concert, a global venture of AT&T and BT.