SouthwestEconomyFEDERALRESERVEBANKOFDALLAS•SECONDQUARTER200910The role of the Mexican maquiladora has changed greatly in recent years, but the basics remain the same. The typical plant is foreign owned and engaged in labor-intensive assembly of intermediate or final goods.1 The vast majority of inputs are brought from the U.S. or another country, and the output is usually sold in the U.S. Maquiladoras are an extension into Mexico of U.S. production of automobiles, electronics, apparel and many other goods. They’re a major engine of growth in cities along the U.S.–Mexico border, where the plants are concentrated. Economic benefits spill into neighboring U.S. cities, creating jobs in manufacturing, warehousing, trans-portation, logistics, real estate services and major border protection programs.2These general characteristics are well known, but a lack of data has limited our understanding of the distribution of ma-quiladora activity. Recently, the Instituto Nacional de Estadística y Geografía (INEGI), Mexico’s chief statistical agency, provided previously unpublished information that will allow us to draw a more detailed por-trait of an industry that employs 1.2 million workers, accounting for about a third of Mexico’s manufacturing jobs.3 We take a preliminary look at where specific maquiladora activities take place within Mexico. Then we examine changes in location since 1990, finding that the North American Free Trade Agreement (NAFTA) and other trade pacts have been the most important factors reshaping pat-terns of maquiladora employment. Maquiladora Location and ActivityMexico created the Border Industri-alization Program in 1965 to promote ma-quiladoras, initially restricting plants to a 20-kilometer-deep strip along the U.S.–Mex-ico border. The original maquiladora cities were Matamoros, Juárez, Nuevo Laredo and Tijuana. Mexico relaxed location restrictions in the early 1970s, allowing the program to expand into the interior, except for such congested and highly industrialized regions as Monterrey and Mexico City. All restric-tions disappeared by the early 1990s.The INEGI data allow us to profile ma-quiladora activity for 1990, 2000 and 2006, showing the percentage of employment by city and region, based on total hours worked. The year 2000 marked the division between a long period of virtually uninter-rupted industry expansion and a period of much slower job growth or even decline. The slowdown started with the U.S. re-cession in 2001. The slump converged with potent foreign competition from China, the Caribbean and elsewhere to cut maquila-dora employment by 298,000 jobs, or 22.1 percent, in 17 months. As the industry evolved, it became ap-parent that permanent job losses were con-centrated in the lowest-skill, lowest-wage sectors. With the maquiladora industry shifting to higher-wage, higher-productivity operations, the pace of recovery fell back on Mexico’s long-standing competitive ad-vantages, such as proximity to the U.S., an experienced and skilled workforce and a stable political system.4 INEGI has tracked 17 principal maqui-ladora cities for many years. They made up 78.4 percent of maquiladora hours worked in 1990 but only 66.4 percent by 2000 and 67.9 percent in 2006 (Table 1). Eleven of the 17 cities are on the U.S.–Mexico border, and their collective employ-ment share went from 70.3 percent in 1990 to 56.7 percent by 2000 and 61.1 percent by 2006. For the six cities on the Texas–Mexico border, the combined share of maquiladora employment fell from 45.6 percent in 1990 to 38.4 percent in 2006. Juárez’s share of maquiladora work has fallen since 1990, but it remains the No. 1 employer among the 17 cities. Gaining share, Reynosa has risen to third; losing share, Matamoros has sunk to fifth. In 2006, California border cities Tijua-na at 13.8 percent and Mexicali at 4.6 per-The Maquiladora’s Changing GeographyBy Jesus Cañas and Robert W. GilmerA lack of data has limited our understanding of the distribution of maquiladora activity. Recently, Mexico’s chief statistical agency provided previously unpublished information that will allow us to draw a more detailed portrait. FEDERALRESERVEBANKOFDALLAS•SECONDQUARTER2009SouthwestEconomy11Table 1 Maquiladora Employment Patterns ShiftingShare of total hours worked Employment* 1990 2000 2006 200617 principal cities 78.4 66.4 67.9 837,828Other cities 21.6 33.6 32.1 396,471Border cities 70.3 56.7 61.1 753,846Texas border 45.6 33.0 38.4 474,434California border 18.9 20.0 19.2 236,968Arizona border 5.8 3.7 3.4 42,398Interior cities 8.1 9.7 6.8 83,982Border interior 7.0 7.2 6.4 79,276Distant interior 1.1 2.5 .4 4,706Texas border citiesJuárez 25.1 17.9 20.6 253,937Reynosa 5.3 5.1 8.3 101,882Matamoros 7.4 4.7 4.4 54,208Acuña 3.2 2.4 2.6 32,579Nuevo Laredo 3.0 1.7 1.8 22,036Piedras Negras 1.6 1.1 .8 9,774Nation 100 100 100 1,234,299*Full-time-equivalent employment, based on annual hours worked per city, divided by annual hours per employee. Annual hours per em-ployee is based on 44 hours a week and a standard vacation and holiday schedule.NOTE: Numbers may not total due to rounding.SOURCES: Instituto Nacional de Estadística y Geografía; authors’ calculations.cent filled the No. 2 and No. 4 positions.5What do maquiladoras produce by city? Juárez was always an important center for automobile-related parts and compo-nents, and Tijuana specialized in consumer and business electronics. However, the new INEGI data offer a broader look at the dis-tribution of maquiladora activity by sector.6 For the 17 cities, we looked at the two largest sectors in 1990 and 2006 and found evidence of greater geographical diversity. On average, the largest sector accounted for 44.2 percent of employment in 1990 and 38.8 percent in 2006. The top two sectors totaled 67.3 percent of employment in 1990 and 62.1 percent in 2006.7 In both 1990 and 2006, three sectors dominated activity on the Texas border—electronics, transportation equipment and electrical machinery (Table 2). This holds on a broader scale as well; one of these three sec-tors was the largest in 12 of the 17 principal cities in 1990 and 13 of them in 2006. And one was the No. 2 sector in 10 cities in both years.On the Texas border, output in elec-tronics and electrical machinery is more closely related to auto parts. Most electron-ics maquiladoras on the