1. Regional Integration and Productivity: The Experiences of Brazil and Mexico Ernesto López-Córdova and Mauricio Mesquita Moreira IDB - INTTD NetAmericas Conference on “ Integrating the Americas” November 20-21, 2002

9. Labor productivity, Manufacturing Sector 1990=100

11. Brazil and Mexico: stylized facts

12. Brazil and Mexico: stylized facts

13. Brazil and Mexico: stylized facts

14. Brazil and Mexico: stylized facts

18. Brazil: Annual TFP Growth 1996-99 2.2 14.0 0.9 12.4 1.9 0.5 4.9 -0.8 0.4 -0.1 2.3 -2.2 2.4 8.3 0.0 4.3 8.2 -0.9 -2.4 6.5 5.1 2.4 -3.5 -0.5 2.5 5.5 8.5 11.5 14.5 Furniture; other manufacturing Other transportation equipment Motor vehicles Precision instruments Radio, television and communication equipment Electrical machinery Office, accounting and computing machinery Machinery and equipment Fabricated metal products Basic metals Other non-metallic mineral products Rubber and plastics products Chemicals and chemical product Refined petroleum and nuclear fuel Publishing Paper and paper products Wood products Leather Apparel Textiles Food products and beverages Total manufacturing Annual total factor productivity growth (%) Source : López-Córdova and Moreira (2002)

19. Mexico: Annual TFP Growth 1993-99 2.1 3.1 -0.3 3.3 4.8 0.6 5.9 4.6 2.5 -3.0 3.2 -0.3 2.4 -1.1 1.9 1.5 2.7 2.0 2.2 1.1 -0.1 1.1 -3.5 -2.5 -1.5 -0.5 0.5 1.5 2.5 3.5 4.5 5.5 Furniture; other manufacturing Other transportation equipment Motor vehicles Precision instruments Radio, television and communication equipment Electrical machinery Office, accounting and computing machinery Machinery and equipment Fabricated metal products Basic metals Other non-metallic mineral products Rubber and plastics products Chemicals and chemical product Refined petroleum and nuclear fuel Publishing Paper and paper products Wood products Leather Apparel Textiles Food products and beverages Total manufacturing Annual total factor productivity growth (%) Source : Author's calculation

21. Brazil: Annual TFP Growth 1996-99 by Industry/Plant Characteristics 1.49 2.93 3.35 2.16 1.33 2.19 2.29 2.14 1.90 3.07 2.42 2.36 2.43 0 0.5 1 1.5 2 2.5 3 3.5 4 MNC Domestic manufacturers Non-users of imported inputs Imported-input users Non-exporters Mercosur exporters All exporters Non-traded industry Exporting industry in Mercosur Exporting industry Importing industry in Mercosur Import-competing industry Total manufacturing Annual TFP Growth ( % ) Source : López-Córdova and Moreira (2002)

22. Mexico: Annual TFP Growth 1993-99 by Industry/Plant Characteristics Source : López-Córdova and Moreira (2002) 0.8 1.4 1.6 1.3 1.0 0.6 1.4 1.4 1.7 3.2 4.4 1.1 0.0 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 Domestic manufacturers MNC: Rest of the world MNC: North America Non-users of imported inputs Imported-input users Non-exporters Exporters Non-traded industry Exporting industry in North America Exporting industry Importing industry in North America Import-competing industry Total manufacturing Annual TFP Growth ( % )

24. Brazil: Productivity Decomposition -50% -30% -10% 10% 30% 50% 70% 90% Domestic MNC Non-users of imported inputs Imported-input users Non-exporters Rest of the World exporters Mercosur exporters Non-exporters All exporters Non-traded in MERCOSUR Traded in MERCOSUR Non-traded Traded Manufacturing Within plant effect Reallocation within industry Reallocation across industries Source : López-Córdova and Moreira (2002)

25. Mexico: Productivity Decomposition -100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% Domestic MNC: Rest of the World MNC: North America Non-users of imported inputs Imported-input users Non-exporters Exporters Non-traded in North America Traded in North America Non-traded Traded Manufacturing Within plant effect Reallocation within industry Reallocation across industries Source : López-Córdova and Moreira (2002)

28. Brazil: Econometric Results Independent variables Reg 1 Reg 2 Reg 3 Reg 4 Reg 5 Reg 6 Reg 7 Reg 8 Reg 9 Reg 10 Exporting activity World exporter 0.0062 (0.0080) Mercosur exporter 0.0105 (0.0080) Exports/sales 0.0011 (0.0003)*** Mercosur exports/sales 0.0008 (0.0009) Imported intermediate goods Imported-input/material costs -0.0006 -0.0004 (0.0002)*** (0.0002)* Imports/material costs 0.0004 0.0003 (0.0001)*** (0.0001)*** FDI spillovers Intra-industry -0.2013 -0.2031 -0.2004 0.1224 0.1221 0.1210 0.1229 0.1222 0.1212 0.1223 (0.0903)** (0.0903)** (0.0902)** (0.0920) (0.0920) (0.0920) (0.0919) (0.0920) (0.0920) (0.0919) From forward linkages -0.9624 -0.9528 -0.9732 -0.2096 -0.2094 -0.2098 -0.2108 -0.2111 -0.2041 -0.2155 (0.1673)*** (0.1673)*** (0.1672)*** (0.1705) (0.1705) (0.1705) (0.1705) (0.1705) (0.1705) (0.1705) From backward linkages 1.5844 1.5754 1.5939 0.3729 0.3739 0.3700 0.3888 0.3715 0.3680 0.3814 (0.2444)*** (0.2444)*** (0.2443)*** (0.2492) (0.2492) (0.2492) (0.2492) (0.2492) (0.2492) (0.2492) Observations 28329 28329 28326 28329 28329 28329 28329 28329 28329 28326 Number of firms 10393 10393 10392 10393 10393 10393 10393 10393 10393 10392 Within R-squared 0.0278 0.0283 0.0287 0.6016 0.6016 0.6016 0.6018 0.6016 0.6016 0.6017 Ho: Sum FDI spillovers=0 - F statistic 3.37 3.35 3.37 1.50 1.51 1.45 1.66 1.47 1.49 1.53 Log TFP Dependent Variable: Dependent Variable: Change in Log TFP

29. Mexico: Econometric Results Explanatory variables: Reg 1 Reg 2 Reg 3 Reg 4 Reg 5 Reg 6 Reg 7 Reg 8 Reg 9 Reg 10 Competition from imports Mexican tariff on total imports -0.0050 -0.0087 -0.0085 -0.0088 -0.0110 -0.0111 -0.0110 -0.0112 -0.0106 -0.0110 (0.0022)** (0.0021)*** (0.0021)*** (0.0021)*** (0.0020)*** (0.0019)*** (0.0019)*** (0.0019)*** (0.0018)*** (0.0019)*** Imports/industry output 0.0187 0.0092 (0.0057)*** (0.0054)* Exporting activity Exporter -0.0088 (0.0045)** Exports/Sales -0.0111 (0.0134) US Tariff (Mx - RofW) -0.0042 -0.0048 -0.0049 -0.0050 -0.0026 -0.0025 -0.0026 -0.0027 -0.0013 -0.0025 (0.0019)** (0.0019)** (0.0019)** (0.0019)** (0.0018) (0.0018) (0.0018) (0.0018) (0.0017) (0.0018) Imported intermediate goods Imported inputs/Total non-labor costs 0.0554 -0.0281 (0.0146)*** (0.0136)** FDI spillovers Intra-industry -0.1439 -0.1402 -0.1450 -0.0146 -0.0129 -0.0160 -0.0116 -0.0142 (0.0533)*** (0.0533)*** (0.0533)*** (0.0495) (0.0495) (0.0495) (0.0474) (0.0495) From forward linkages 0.3611 0.3739 0.3637 0.2880 0.2945 0.2913 0.2533 0.2870 (0.0739)*** (0.0739)*** (0.0739)*** (0.0687)*** (0.0688)*** (0.0687)*** (0.0665)*** (0.0687)*** From backward linkages 1.1316 1.0759 1.1270 0.6345 0.6076 0.6316 0.6140 0.6360 (0.1629)*** (0.1635)*** (0.1629)*** (0.1517)*** (0.1522)*** (0.1517)*** (0.1466)*** (0.1516)*** Observations 26146 26146 26146 26146 26146 26146 26146 26146 25462 26146 Number of plants 5107 5107 5107 5107 5107 5107 5107 5107 5014 5107 Within R-squared 0.0160 0.0155 0.0174 0.0158 0.3694 0.3704 0.3708 0.3701 0.3742 0.3706 Ho: Sum FDI spillovers=0 - Chi2 statistic 53.32 50.27 53.09 27.87 26.72 27.79 26.55 27.94 Dependent Variable: Dependent Variable: Log TFP Change in Log TFP

30. Productivity and Integration: Summary of Econometric Evidence + + Competition from imports Tariff elimination + + Import penetration + + Foreign Direct Investment Foreign ownership of the firm + + Spillovers Intra–industry – 0 – 0 Through backward linkages + 0 + + Through forward linkages – 0 + + Net effect 0 0 + + Channel Brazil Mexico TFP level TFP growth TFP level TFP growth Exporting activity Exporter status 0 Exports / sales + Mercosur exports / sales 0 – 0 Preferential access to the US market + 0 Imported inputs – – + –