Mexico

Water is increasingly becoming a limiting factor for sustainable economic growth and development in many countries. Its allocation has significant impacts on overall... Show More + economic efficiency, particularly with growing physical scarcity in certain regions. Greater water supply variability further increases vulnerability in affected regions. Water also has become a strategic resource involving conflicts among those who may be affected differently by various policies. This paper analyzes various policy interventions aimed at improving water allocation decisions, using a novel approach that incorporates macro and micro level considerations in a unified analytical framework. The framework facilitates assessment of various linkages among policies and their impacts within individual sectors and economy-wide. Drawing on country based studies in Morocco, South Africa, Turkey, and Mexico, the analysis reveals difficult tradeoffs among various policy objectives, including priorities placed on different sectors, regional advantages, and general economic efficiency gains versus broader social impacts. The comparison of policy impacts demonstrates the usefulness of the framework in information that policy makers can use to rank the policy interventions according to the emphasis placed on different policy objectives. The paper also compares approaches used in other studies that apply computable general equilibrium models in various contexts of water, environment and agriculture. Show Less -

The literature on regional integration agreements (RIAs) is vast and deals with political, economic, and political economy issues. The literature on the economics of... Show More + RIAs deals mostly with static effects, and concludes that these effects are, in general, ambiguous. So far there has been no empirical analysis of the dynamic effects of RIAs based on their impact on technology diffusion from partner and nonpartner countries. Schiff and Wang's paper is a first attempt in this direction. The authors examine the impact of the North America Free Trade Agreement (NAFTA) on total factor productivity in Mexico through its impact on trade-related technology transfers from OECD countries. They estimate trade-related technology diffusion by using a measure of trade-related foreign research and development (R&D). Foreign R&D is constructed based on industry-specific R&D in the OECD, OECD-Mexico trade patterns, and input-output relations in Mexico. The authors find that: Mexico's trade with its NAFTA partners had a large and significant impact on Mexico's total factor productivity, while trade with the rest of the OECD did not. Simulating the impact of NAFTA has led to a permanent increase in total factor productivity in Mexico's manufacturing sector of between 5.5 percent and 7.5 percent and to some convergence with the economies of Canada and the United States. Show Less -

Critics of free trade have raised the specter of a "race to the bottom," in which environmental standards collapse because polluters threaten to relocate to "pollution... Show More + havens" in the developing world. Proponents of this view advocate high, globally uniform standards enforced by punitive trade measures that neutralize the cost advantage of would-be pollution havens. To test the race-to-the-bottom model, the author analyzes recent air quality trends in the United States and in Brazil, China, and Mexico, the three largest recipients of foreign investment in the developing world. The evidence clearly contradicts the model's central prediction. The most dangerous form of air pollution--suspended particulate matter--has actually declined in major cities in all four countries during the era of globalization. Citing recent research, the author argues that the race-to-the-bottom model is flawed because its basic assumptions misrepresent the political economy of pollution control in developing countries. He proposes a more realistic model, in which low-income societies serve their own long-run interests by reducing pollution. He concludes with recommendations for international assistance measures that can improve environmental quality without counterproductive enforcement of uniform standards and trade sanctions. Show Less -

Survey evidence from Mexico reveals large observed differences in pollution from factories in the same industry, or the same area, or operating under the same regulatory... Show More + regime. Many factories have adopted significant measures for pollution control and are in compliance with environmental regulations, but some have made little or no such effort. For lack of data, systematic research on the reasons behind such variations in plant-level environmental performance (especially on how impediments to pollution control affect plant behavior) is rare, even in industrial societies. Drawing on a recent plant-level survey of Mexican factories, the author identifies a number of performance variables characteristic of compliant and non-compliant plants, as well as factors that no-compliant plants perceive to be obstacles to pollution control. Non-compliant firms made less effort than compliant firms to change materials, used, to change production processes, or to install end-of-pipe treatment equipment. They had significantly fewer programs to train their general workers in environmental responsibilities. They lagged behind in environmental training, waste management, and transportation training. They received less technical training, especially about the environment, environmental policy and administration, and clean technology and audits. Responses about obstacles to better environmental performance included scarcity of training resources, government bureaucracy, high interest rates, and Mexico's lack of an environmental protection culture. Respondents said that senior managers did not emphasize the environment, assigned more priority to economic considerations, and were not trained in the subject. Most important, however, little information was available about Mexico's environmental policy. These findings suggest the importance of technical assistance - especially training and information. In Mexico, the information gap on policy is a major problem. Mexican environmental agencies should invest more in technical assistance and environmental training targeted to non-compliant enterprises. Environmental education, especially of senior managers, could significantly improve pollution control. Maintaining close contact with non-compliant firms, designing programs targeted to them, and pursuing them systemically should increase their responsiveness to regulations. Show Less -

The authors use new data from Brazil and Mexico to analyze relationships linking economic development, the size distribution of manufacturing plants, and exposure to... Show More + industrial pollution. For lack of data, prior work in this field has been limited largely to water pollution and medium-size plants. This study examines air pollution and encompasses small plants (with 1 to 20 employees) as well as medium-size and large plants. Four main questions are addressed (with answers from plant-level data): a) Are small plants more pollution-intensive than large facilities? Clearly, yes. b) Are there proportionately more small plants in low-income regions? The answer is yes, in thousands of Brazilian municipalities. Small plants dominate poor regions and are a relatively low source of employment in high-income areas. c) Is industry more pollution-intensive in low-income regions? In Brazil, yes. For each municipality, the authors estimate the share of the six most pollution-intensive ("dirty") sectors in total industrial activity. They find that the dirty-sector share declines continuously with increases in municipality income per capita. d) Do poor areas suffer more than wealthy areas from industrial air pollution? Paradoxically, no. The risk of mortality from industrial air pollution is much higher in the top two income deciles among Brazil's municipalities and the great majority of projected deaths is attributable to emissions from large plants.The scale of large-plant emissions dominates all other factors. Lower-income areas suffer much less from industrial air pollution in Brazil, despite the greater emissions-intensity of smaller plants and the prevalence of smaller plants in lower income areas. Show Less -

Are multinationals flocking to pollution havens in developing countries? Using data from four developing countries (Cote d'Ivoire, Mexico, Morocco, and Venezuela), the... Show More + authors examine the pattern of foreign investment. They find almost no evidence that foreign investors are concentrated in dirty sectors. They also examine the behavior of multinationals doing business in these four countries, testing whether there is any tendency for foreign firms to pollute more or less than their host country counterparts. To do this, they use consumption of energy and dirty fuels as a proxy for pollution intensity. They find that foreign plants in these four developing countries are significantly more energy-efficient and use cleaner types of energy than their domestic counterparts. The authors conclude with an analysis of US outbound investment between 1982 and 1994. They reject the hypothesis that the pattern of US foreign investment is skewed toward industries in which the cost of pollution abatement is high. Show Less -

The lack of an appropriate regulatory environment is a principal factor behind inadequate water and sanitation services in many parts of Latin America. Many governments... Show More + recognize the need to improve cost recovery and accountability in services - and increasingly see private sector participation as a tool for improving efficiency and attracting commercial sources of investment finance. Consultants interviewed representatives of private companies that recently contended for contracts to provide water and sanitation services in four Latin American cities (Buenos Aires, Caracas, Mexico City, and Santiago). These private operators identify the regulatory conditions they look for deciding whether to participate in a bid. On the basis of the interviews, the authors identified nine conditions. (1) Specify key terms and conditions of regulation in the contract, leaving little discretionary power to the regulating authority. In particular, specify the key aspects of regulation (such as price, quantity, and quality) in the contract. (2) Spell out credible procedures for the fair resolution of disagreements about contractual or regulatory matters. (3) Carefully specify credible technical objectives which the contractor will be expected to achieve under the contract. (4) See that government tariff policies support the principle of cost recovery for water services - and that tariff adjustment formulas adequately reflect changes in costs, inflation, and the exchange rate. (5) If historical collection rates do not indicate consumers' willingness to pay for services such as tariffs that reflect the cost of service, allow an adequate period of time to phase in higher tariffs - and give the operator adequate protection from nonpayers (either the right to cut off service or recourse to another source of payment). (6) Review public works law, contract law, and accounting practices and, if necessary, amend them in advance to ensure that they accommodate and protect any long-term investments foreseen under build-own-transfer or concession-type arrangements. (7) Eliminate unnecessary and bureaucratic administrative requirements that make bidding expensive. (8) Make a contract and expected profits big enough to warrant the high fixed cost of bidding. (9) Provide the education and outreach needed to inform consumers and secure the support of labor interests. In addition, the firms interviewed said that host countries would be better able to attract private-sector providers if they: (a) used reputable outside technical, legal, and financial advisors; (b) allowed local and foreign banks that finance investments to review and comment on proposed contracts and participate in negotiations; and (c) reduced the cost of bidding for small contracts. Show Less -

The authors review the economic principles that should guide the efficient choice of targeted policies for environmental protection. They recommend policy instruments... Show More + along three dimensions: (1) whether they use economic incentives; (2) whether they target environmental damage directly; and (3) whether they specify prices, quantities, or technologies. This distinction is helpful in guiding policy choices because many discussions in the economics literature on environmental policies mistakenly claim advantages for incentive-based instruments by showing, for instance, that direct policies of this sort are less costly than indirect non-incentive measures. After analyzing efficient responses to the air pollution problem, the authors come up with somewhat surprising results. For three of the cities (Ankara, Los Angeles, and Mexico City), the efficient instruments selected by this (admittedly limited) exercise are similar: indirect incentive-based policies. Only Cubatao differs in that direct non-incentive regulations are the efficient policy choice. But choosing indirect policy instruments is not without its problems. This category is the broadest one. For instance, while there is only a single direct incentive-based price instrument (emissions taxes), several indirect incentive-based price policies exist including taxes on inputs and on complementary and substitute products. Indirect policies also cannot simultaneously target the incentives to reduce waste generation, production efficiency, and reduce output to reduce pollution. A combination of indirect policies will then be required to control pollution. But if the regulatory costs of controlling additional variables are high they may outweigh the cost of monitoring and enforcing a single direct policy. Finally, indirect regulations may be accompanied by perverse incentives, such as new source bias or reduced marginal costs of polluting. Efforts to offset these perverse incentives by regulating additional variables may be subject to second-best problems: two regulations with opposite results can be costlier than no regulation at all. The main lesson the authors draw from the cases examined: Once decisions are made - whether to concentrate industry, to rely on private vehicles for transportation, to subsidize a particular energy source, or to use a certain environmental policy - they acquire a certain performance. Capital is invested and workers are trained under the prevailing laws, and these are costly to change. Los Angeles cannot reverse its emphasis on the automobile; Brazil cannot easily move its industrial center away from Cubatao; Mexico cannot quickly reduce the concentration in its capital city; and Turkey's development would suffer if energy subsidies were removed abruptly. For this reason, it is important to design policy with an eye toward longer-run concerns. It makes sense, for example, for cities such as Ankara to begin to enact policies to prevent mobile source pollution from worsening over the next decades. The authors also point out the dangers of ignoring intermedia substitution of pollutants. In places such as Cubatao, where air quality has been cleaned up, the improvement may have come at the expense of water quality or the accumulation of hazardous wastes. Show Less -

The Mexican sugar industry operates under strict government controls. The sugar parastatal, AZUCAR, and other state agencies govern virturally all aspects of pricing... Show More + and, until recently, AZUCAR controlled virtually all aspects of marketing. The purpose of this study is to make transparent the main economic effects of existing sugar policies. Three broad measures are used to estimate the resource misallocation effects of intervention: the nominal rate of protection, the effective rate of assistance and the net subsidy equivalent. Theoretical arguments are also used to demonstrate other potential inefficiencies in resource use. To estimate the effects of efficiency-improving policies, an economic model of Mexican production, demand, stock demand and cane-pricing arrangements is constructed. This model is linked to a model of the world sugar market to evaluate the trade and other economic opportunities which should arise from policy reforms. Show Less -