The Enclave Economy

Abstract

Analyzes the extent to which foreign investment in Mexico's information technology sector brought economic, social, and environmental benefits to Guadalajara. Foreign investment has been widely perceived as a panacea for developing countries—as a way to reduce poverty and kick-start sustainable modern industries. The Enclave Economy calls this prescription into question, showing that Mexico's post-NAFTA experience of foreign direct investment in its information technology sector, particularly in the Guadalajara region, did not result in the expected benefits. Charting the rise and fall of Mexico's “Silicon Valley,” the authors explore issues that resonate through much of Latin America and the developing world: the social, economic, and environmental effects of market-driven globalization. In the 1990s, Mexico was a poster child for globalization, throwing open its borders to trade and foreign investment, embracing NAFTA, and ending the government's role in strengthening domestic industry. But The Enclave Economy shows that although Mexico was initially successful in attracting multinational corporations, foreign investments waned in the absence of active government support and as China became increasingly competitive. Moreover, the authors find that foreign investment created an “enclave economy” the benefits of which were confined to an international sector not connected to the wider Mexican economy. In fact, foreign investment put many local IT firms out of business and transferred only limited amounts of environmentally sound technology. The authors suggest policies and strategies that will enable Mexico and other developing countries to foster foreign investment for sustainable development in the future.

Export growth, foreign direct investment and technological capability building under the maquila model: winding roads, few intersections

“…The world manufacturing industry is dominated by global value chains, which decompose different links of the value chain and locate them in diverse countries, gaining access to resources and capabilities and also to important markets. 11 Exports of manufactured goods in CAM, in particular maquila, are strongly integrated into global value chains, and are mainly specialised in the less knowledge-intensive links of the global value chain (manufacturing and assembling); activities such as product design and R&D are not common in CAM (Gallagher and Zarsky, 2007;ECLAC, 2008;Padilla et al, 2008).…”

“…Foreign manufacturing firms have in general weak links with the local economy, limiting potential economic and technological spillovers. In some cases, FDI operates as a real enclave, importing most of its inputs and intermediate goods (Buitelaar et al, 1999;Dussel, 2004;Sánchez-Ancochea, 2006;Gallagher and Zarsky, 2007). Moreover, foreign subsidiaries undertake processes characterised by low-technological intensity, limiting even more the potential knowledge spillovers to the local economy.…”

“…However, the effect of international trade and FDI on technological capabilities is neither automatic nor necessary. On the one hand, FDI may operate within enclave economies generating few technological and economic spillovers (Gallagher and Zarsky, 2007); on the other, long and sustained efforts to build capacity or undertake parallel investment in physical, financial and human capital in the local economy are frequently needed to take advantage of new access to international sources of knowledge (Moran, 1998;Radosevic, 1999;Agosín and Machado, 2005).…”

Toward an International Relations Theory of National Innovation Rates

“…Absent similar external threats and facing swiftly escalating domestic tensions, Mexico's political leadership was content to wait and hope for knowledge spillovers and technology transfer to happen naturally, as foreign firms trained local workers and firms as suppliers in their technology production chains. 75 …”

Defining and Measuring Green FDI

“…According to Gallagher and Zarsky (2007), FDI has the potential to deliver three types of greening effects:…”