Indus ~ Ry Agglomeration and Trade in Nexico

The thesis is a st:ud,y of' industry localization, the geographic concentration of fil:-ms in specific or related activities. The stUdy centers on two principal issues: the process througtl which industry agglomerations form, and the relationship between the trade regime and the pattern of geographic concentration. We consider ttle particular case of the Mexican garment industry. Evidence is drawn from extensive firm-level interviews, as well as published and unpublished government sources. Part one studies t.ht~ formation of industry agglomer'ations. The industry follows a process of geographic concentration we term dispersed agC;flomeration. The industry beq ins concentrated in a single marketing center. Over t.l.me, production activities separate from the marketing center and relocate to periphery regions, but not until wages in tIle center far exceed those in the periphery. Under dispersed agglomeration, the location decision involves investment issues that are similar to an innovation process. A pioneer firm is the first to relocate, and undertakes the investments that are necessary to open a location to production. other potelltial entrallts wait and free r ide off piC'neer investments in latel~ pe:t-iods. Tht~ pioneer remains will.ing to open a periphery location due to temporary monopsony power enjoyed in the new location. Econometric analysis of industry location in Mexico offers positive support for the theory. Part two studies how economic i~tegration affects the pattern of geographic concentration. The particular case we consider is the integration of the Mexican garment industry into a North American Free Tl-a(ie Area. Inte:gratic)n reshapes the pattern of vertical specialization b~tween countries and the location of production within each country. Marketing externalities lead to the geographic conceTltration of distr ibutl.on acti.vities. Under t.he closed economy I Mexico city was the country's gar·ment market ing center 0 New York a11d Los Angeles fUflct ion as gclrment marketing centf~rs ill the U. s. with free trade I small (~OtJ.ntry prodllcers provide assembly servic~s for firms in the large country marketing centl~r. Mexican garment producers, who previously served the dOlnesti.(~