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Free trade and regional developmentin northern Mexico*de Bell, L. (2010). “Free trade and regional development in northern Mexico”, EsicMarket,Vol. 136, pp. 73-91.

AbstractThe impressive economic performance of Mexico during the first years aftersigning the North American Free Trade Agreement (NAFTA) with Canadaand the United States has generated much interest as an example for otherLatin American countries in their transition towards market-led economies.However, there is also evidence of increasing inequalities between regions,economic sectors and social groups, depending on specific local conditionsand practices. Detailed case studies are needed to understand why the out-comes are successful in certain specific contexts whereas in others they arenot. The object of study concerns the dynamics of development in Coahuila,a state situated in the northeast of Mexico. In particular since the start ofNAFTA, Coahuila has become one of Mexico’s most successful states in termsof exports, mainly as a result of substantial investments in the automotive andthe garment industry. Although these new investments contributed strongly tothe growth of gross domestic product, this study proposes a more thoroughand critical approach with regard to its regional and social distribution, aswell as the sustainability of the dominant development model.

Keywords: Free trade, foreign direct investment, regional development,NAFTA, Mexico, Coahuila, export industry, sustainable development.

JEL Codes: F15, N96, R11, R30, R58.

Leendert de BellHvA University of Applied Sciences Amsterdam / HES School of Economics and BusinessLatin American Business StudiesFraijlemaborg 133, 1102 CV Amsterdam, The [email protected]

* Paper presented at theXLIII CLADEA AnnualConference, Puebla,Mexico, October 22-25,2008.

IntroductionSince the 1980s, classic market theories promoting liberalisation,deregulation, and privatisation have gained terrain throughout most ofLatin America and the rest of the world, and rapidly became part of thedominant economic discourse. The so-called Washington Consensusprescribed the same structural adjustment recipes for all nations,regardless of their level of development, regime type, or cultural con-text. Following the example of the “Asian Tigers”, export-orientedindustrialization, based mainly on foreign direct investment (FDI), wasconsidered the surest recipe to capture the potential benefits of globa-lization processes.In this context, the free trade agreement between Mexico, the United

States and Canada, effectuated in 1994, can be considered one of the mostradical trade experiments in history. The North American Free TradeAgreement (NAFTA) created the world’s largest free trade area in termsof gross domestic product (GDP), but most of all, NAFTA represented anew stage in world trade policy because it was the first treaty betweeneconomies with fundamentally different levels of development. From theperspective of president Salinas (1988-1994), NAFTA would finallysecure Mexico’s entry ticket to the “First World” after a decade of eco-nomic crisis and drastic restructuring. Not surprisingly, NAFTA hasattracted considerable political and academic interest with regard to itseffects on Mexico’s economy.Fifteen years after the start of NAFTA, many politicians insist that

Mexico has made progress in many areas. Although it is particularly diffi-cult to isolate the effects of NAFTA from other major events, such as thedevaluation of 1994 and the prolonged growth of consumption in theUnited States during the 1990s, Mexico’s economic performance duringthe past one-and-a-half decade has been impressive in terms of FDI,exports and GDP growth. However, when looking beyond these macro-economic objectives, NAFTA has turned out to be —to say the least— amixed blessing, since there is increasing empirical evidence that not allregions, economic sectors and social groups have managed to benefit fromthe increased economic integration.


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In contrast to what is suggested by the economic orthodoxy of theinternational financial institutions and many policymakers, imitating asuccessful development model offers no guarantees for success else-where. Globalization processes are always mediated by specific circum-stances and local practices, which involve a large number of actors —forexample governments, entrepreneurs and unions— and as such generatedifferent outcomes. The main objective of this study is, by means of acase study, to come to a more critical assessment of this economic mo-del with regard to the regional and social distribution of economicgrowth, as well as the long-term sustainability of the dominant develop-ment model.The particular focus concerns the economic dynamic in the state of

Coahuila, located in the northeast of Mexico, analyzing how specific fac-tors and different local actors influenced the outcomes of this developmentmodel. For several reasons, Coahuila makes an interesting case withrespect to the effects of the economic transition. During the past decades,and particularly since NAFTA, Coahuila was radically transformed,becoming one of Mexico’s most successful states in terms of export acti-vities, mainly as a result of substantial amounts of FDI in the automotiveand garment industry. These new investments contributed strongly to thestate’s GDP growth, but on the sub-regional level one can distinguishgrowing economic and social inequalities.The first section contains a brief review of the literature, followed by

the methodology used in this analysis. The central part presents the mainsocio-economic characteristics of the state of Coahuila and analyzes itsgovernment policy with regard to NAFTA. The subsequent sectiondescribes the impact of NAFTA on the state of Coahuila, both quantita-tively and qualitatively. The final section includes the conclusions andraises issues for discussion.

Literature reviewAt present, one of the main challenges of development theory and practicehas become how to capitalize on globalization as a tool for local develop-ment. Studies dedicated to the analysis of global value chains —the global



organization of specific industries and the relationships between firms atdifferent organizational and geographical levels— have allowed us a va-luable understanding of the processes that link the global with the local (cf.Gereffi & Korzeniewicz, 1994; Bair & Gereffi, 2001; Dicken, 2007). Inaddition, it is common to analyze how global value chains are inserted intolocalized agglomerations of production, or clusters (cf. Porter, 1996;Altenburg & Meyer-Stamer, 1999).Both the studies of clusters and analyses of global value chains have

received increasing attention from academics and politicians in recentyears, in particular the most successful examples. In the words of GaryGereffi: “one of the central tasks in fashioning national developmentstrategies is to determine how to plug into transnational production sys-tems in a way that allows nations to increase their productivity and inter-national competitiveness while generating a higher standard of living forthe local population” (Gereffi, 1996; p. 79). It is obvious that to manypublic officials, FDI represented one of the most important instruments forregional development since it can generate employment, it can encourageexport manufacturing and it can create opportunities for local firms toinnovate and upgrade knowledge.However, not all countries, regions or social groups manage to benefit

from the increased global economic integration. During the past decade,several authors with a more institutionalist approach have argued —on thebasis of different lessons from the “Asian Tigers”— that in order for theprocess of economic restructuring to be successful, not less state interven-tion in the economy is necessary, but rather a different kind of state inter-vention (cf. Wade, 1990; Gwynne & Kay, 2003). According to thisapproach, the state still has an important role in providing incentives forinvestment, for example in terms of industrial infrastructure, but also inthe accumulation of human capital, taking care of key areas such as toensure high quality services in education and health, which —by improvingthe living conditions of the population— enhances the productive capaci-ties of countries and regions. This emphasizes that there are potential be-nefits of becoming integrated into the world market, but only when atten-tion is paid to the endogenous process of development, or in other words,

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when the domestic institutions and complementary policies are appropri-ate (cf. Dicken, 2007; Rodrik, 1997).

MethodologyIn order to reach a fuller understanding of the impact of free trade onregional development, this study goes beyond the exclusive focus on theeconomic behavior of firms, common in the analysis of global valuechains and clusters, and places developments in a broader socio-eco-nomic and historical perspective. The specific local conditions and prac-tices of different actors play an important role in explaining the differentoutcomes, both quantitatively and qualitatively. For comparative rea-sons, examples that failed to successfully link up with the world econo-my are also included here. Analyses of failures can often offer insightsthat are just as valuable –or more– than success stories. The outcomes ofthis study are based on statistics and semi-structured interviews with se-nior officials, (former) politicians, influential entrepreneurs and (former)union leaders during several periods of fieldwork in the different sub-regions of Coahuila.

Coahuila before NAFTABordering the United States (Texas) for more than 500 kilometers, thedevelopment strategy of the political elite of Coahuila since the mid-1970swas aimed at creating favorable conditions for attracting foreign invest-ment. Until the 1990s, this strategy was not as successful as it was inother border states, especially because of Coahuila’s peripheral location, itslack of a modern urban-industrial infrastructure and its low populationdensity. However, since the start of NAFTA Coahuila was radically trans-formed, becoming one of Mexico’s most dynamic states in terms of exportactivities, mainly due to a substantial increase in FDI.The administration of Rogelio Montemayor Seguy, governor of

Coahuila from 1993 to 1999, began only a month before the start ofNAFTA. Trained in the United States in the neoclassical economic tradi-tion, his development plan completely aimed at attracting new foreigninvestment under NAFTA, with the objective of creating new jobs, stimu-

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lating export manufacturing, and improving the learning of domestic firmsthrough new technologies. Under the influence of the cluster theory ofMichael Porter (1996), the main strategy of the Montemayor administra-tion was to transform the existing sub-regional diversity within Coahuilainto comparative advantages.On the basis of socioeconomic characteristics, one can distinguish

five sub-regions within the state of Coahuila: the Border region, the Car-bonífera, the Center region (here including the Desert region), the South-east region and the Laguna (Figure 1). According to the developmentplan of Montemayor, each sub-region of Coahuila was to specialize inthe economic activity for which it already provided the most favorablecircumstances; generally depending on one or two dominant companies(Montemayor, 1994). In the 1990s, the state of Coahuila offered com-parative advantages in two out of the three industries that had demons-trated to have good opportunities for entering the US market in thedecade before: the automotive industry and the garment industry. TheMontemayor administration decided not to actively promote the thirdsector, the electronics industry, since other cities such as Ciudad Juárez,Tijuana and Guadalajara had a longer tradition in this sector.The local economy of the Southeast region of Coahuila had tradition-

ally been dominated by the Grupo Industrial Saltillo (GIS) until both Ge-neral Motors (GM) and Chrysler set up two modern export manufactur-ing plants in the corridor Saltillo-Ramos Arizpe in the early 1980s. Themagnitude of these investments and their indirect effects changed the eco-nomic outlook of the Southeast region completely, turning the automotiveindustry into its dominant economic sector. In the face of NAFTA, a strongautomotive cluster had already been built around the two US companies.The Laguna is the only region of the state of Coahuila suitable for agri-

culture, traditionally dedicated to growing cotton on a large scale, butmore recently it was largely replaced by the more profitable dairy industry.By the 1980s, maquiladora industries established their operations aroundTorreón, especially in the garment sector, which generated a lot of employ-ment with relatively low investments. This partially eased the high levels ofunemployment among small peasants who did not have enough resources

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to achieve the necessary economic transition. At this time, themaquiladoraindustry in the Laguna was limited to the sewing and the assembly of gar-ments, while the design and the cutting of fabric was restricted to US com-panies in their home country. To meet the objective of forming a cluster ofgarment industries in the Laguna, in particular the production of denim,several companies were needed that could also manage more capital-inten-sive operations, such as the production of the fabric.

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Figure 1. The state of Coahuila and its sub-regional division



The economic situation in the Center (and Desert) region and the Car-bonífera with regard to NAFTA was harder, because both sub-regions stillheavily relied on one single company: the former state-owned companyAltos Hornos de México (AHMSA), located in Monclova. The Car-bonífera, as the name indicates, traditionally depended on coal mining,which was the basic raw material for AHMSA. The process of economicrestructuring resulted in dramatic changes within the company. Being thelargest steel company in the country under the strategy of import substi-tuting industrialization, this process had a strong impact on the two sub-regions, especially since AHMSA’s privatization in 1991, which resulted inhigh levels of unemployment. The objective of the new owners, the GrupoAcerero del Norte (GAN), was to produce high quality steel that couldcompete on the global market and could serve as raw material for the auto-motive and machinery industry.Because of its location, the economy of the Border region of Coahuila

was mostly directed towards the US market. However, Piedras Negras wasdeveloped primarily as a center of international trade, while the local eco-nomic development of Ciudad Acuña depended mainly on the export-assembly industry. Finally, for areas of Coahuila that exhibited low levelsof economic activity or high levels of unemployment, such as the ruralareas in the Laguna, the Carbonífera and the Center (and Desert) region,the Montemayor administration simply promoted the establishment oflabor-intensive, low skilled and low paid maquiladoras, in order to createmore jobs.

The sub-regional impact of NAFTA: a quantitative analysisIn line with the development plan of Montemayor, the economic promo-tion of the state was organized more efficiently after the local private sec-tor was involved, industrial infrastructure was improved and deregulationmeasures were accelerated. In terms of new investments, the resultsbetween 1994 and 1999 were impressive. A large number of companies,both national and international, established operations in Coahuila underNAFTA, strongly contributing to an extraordinary growth of its export-oriented industries. Coahuila even became one of Mexico’s most success-

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ful export manufacturing states, together with some of the most industria-lized states such as the Federal District, the State of Mexico, Nuevo Leónand Jalisco.The investments also resulted in a big boost of the state’s GDP growth

and the generation of new employment. Once the negative effects of thefinancial turmoil of 1994-1995 were overcome, unemployment indicatorsfell sharply in the major urban areas of Coahuila (INEGI, 2005). Thesituation of the labor market in Ciudad Acuña and Saltillo even showedlabor shortages at the end of the Montemayor’s administration. Based onthe macroeconomic data of exports, new investments and employmentgeneration, Montemayor’s government was one of the most prominentadministrations in the recent history of Coahuila. However, table 1 alsoshows that there were serious sub-regional imbalances in the number,volume and employment generated by new investments.

Since the start of NAFTA, the Southeast region, particularly the corri-dor Saltillo-Ramos Arizpe, was the largest recipient of new investments. Italready had a strong outlook and concentration towards export manufac-turing, just as the Laguna and the Border region of Coahuila, which alsoreceived a substantial number of new investments. Even the Center regionfollows closely behind the Border region with regard to the total numberof investments, although its share does not represent half the amount ofinvestments that was established in the Southeast region. The Carbonífera,

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Border Carbonífera Center Laguna Southeast COAHUILA

Total no. 52 26 46 61 99 284Vol. (US $) 387,250,000 263,081,000 840,506,711 953,958,571 2,919,200,000 5,363,996,282Employm. 19,410 9,358 12,486 30,979 38,682 110,915

Table 1. New investments in the state of Coahuila, by sub-region, 1994-1999(Number, volume and employment generation, in absolute numbers)

Sources: Based on Montemayor (1999; p. 108-110); SEFOMEC (1999).



which perhaps might be the sub-region that most needed a new economicimpulse, lagged behind as the sub-region with the poorest economic per-formance in the period 1994-1999.According to the data from table 1, the employment generation is large-

ly proportionate with the number of new investments, with the exception ofthe Laguna (relatively more jobs generated than investments) and the Cen-ter region (relatively more investments than new jobs). Regarding the gen-eration of employment, the Southeast region and the Border region standout. In the first sub-region, in particular in the capital Saltillo, the labor mar-ket shifted from a situation of high unemployment in 1996 to a situation oflabor shortage in 1999. In the Border region, in particular in Ciudad Acuña,the population doubled in less than a decade as a result of labor shortages,which, in turn, resulted in more attractive salaries and benefits.However, the sub-regional imbalance within Coahuila was expressed

most clearly in the area of volume of investments. The Southeast regionreceived more than half of the total new investments. When analyzingemployment generation in relation to the volume of new investments, wecan conclude that the Southeast region, and to a lesser extent the Centerregion, have received most capital-intensive investments, while in theLaguna, the Carbonífera and the Border region labor-intensive investmentsare most important.To get a clearer understanding of the reasons why some regions are

more successful than others in attracting FDI, one can distinguish somelocal variables. For example, the role of pro-active entrepreneurs, thoughfew in number, gave rise to a favorable business climate, which has con-tributed greatly to the success of local export industry in the Laguna, theBorder region and the Southeast region of Coahuila. In contrast, in theCenter region and in the Carbonífera, the private sector has never had arole in local development due to the high degree of intervention in the localeconomy by the federal government. A strong local industrial tradition canalso significantly stimulate regional development. Another aspect thatstands out in sub-regions like the Southeast and the Laguna is the avail-ability of a good and efficient infrastructure such as roads, railways, air-ports, electricity, colleges, influential business organizations, banks, etc.

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The absence of an industrial tradition, however, does not necessarilymean an obstacle to attracting foreign investors, as shown in the case ofCiudad Acuña, a modest city in northern Coahuila without any industrialtradition, which has become the state’s most important maquiladora cen-ter. The strong attraction of FDI to Ciudad Acuña, as well as to the ruralarea of the Laguna, can be explained mainly by the absence of a uniontradition. As a result, the labor market was more easily controlled by thenew companies that set up their operations in these sub-regions, whichalso had lower wage levels. The labor market in the Center region and theCarbonífera, in contrast, has been highly influenced by the presence ofstrong national unions, resulting in relatively high wage levels and a repu-tation of labor conflicts.

The sub-regional impact of NAFTA: a qualitative analysisTo establish the local impact of these new investments, their internationalorganizational structure and their contribution to sustainable regionaldevelopment, a qualitative approach that analyzes the major industrial sec-tors in the state of Coahuila since the beginning of NAFTA is necessary. Asexpected, the automotive industry and the garment industry have domi-nated the majority of new investments in Coahuila between 1994 and1999. Since NAFTA anticipated the elimination of tariffs and quotas ongarment production in the course of fifteen years, while at the same timeestablishing “rules of origen”, Mexico became one of the most attractiveplaces in the world for the production of clothing almost overnight. Thisnot only caused a strong growth of investments in Mexico’s garment indus-try, but also promoted its integration with the US garment industry. How-ever, both in terms of GDP and in terms of export dynamics, the automo-tive industry was the fastest growing sector under NAFTA (Dussel, 2000;p. 125).

The garment industryThe most notable effect of NAFTA with respect to the garment industrywas visible in the Laguna (Figure 2). The incentives offered by the stategovernment, combined with an effective promotion on behalf of the local

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private sector, and the establishment of several large producers of textilefabrics (denim) in the Laguna served as a catalyst for other national andinternational producers in the garment sector, allowing the establishmentof a “full-package” cluster.More capital-intensive operations, such as the production and ironing

of fabric, were concentrated in the urban area of Torreón, which brieflyacquired the nickname “the Denim Capital of the World”, while the labor-intensive operations (assembly and washing) generally preferred the ruralcommunities in the Laguna. The influence of transnational companies inthe garment industry is generally less direct, and because it requires rela-tively little capital and technology, the participation of local capital is high-er. In fact, all fabric producers in the Laguna are of local origin and theycontrol the production process of garments from the beginning until finalproduct delivery (Bair & Gerrefi, 2001).In sub-regions with high unemployment, such as the Carbonífera and

the Center region of Coahuila, the garment sector provided the mostimportant economic alternative (Figure 2), as large investors only deman-ded cheap labor. However, in this industry profit margins per unit aresmall, and their products are vulnerable to changes in fashion. As a result,these businesses tend to easily move their operations to areas with evenlower wages once the economic conditions become unfavorable (Dicken,2007; p. 274).

The automotive sectorAs for the automotive industry, over 60 percent of the total new investmentin this sector benefited the Southeast region (Figure 2), justifying Saltillo’snickname as “Detroit in the Desert”. The most important impulse for theautomotive industry of Coahuila came from Chrysler, which installed anew production plant for pick-up trucks for export markets a few milessouth of Saltillo in 1994. In turn, GM chose to expand and modernize theirexisting operations in Ramos Arizpe. Including all new investments bymajor suppliers and producers of auto parts, the economic importance ofthe automotive cluster in the Southeast region in the total exports ofCoahuila became even more dominant (Dávila, 2001; p. 40).



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The Border region of Coahuila also received some investments in theautomotive sector, but it did not represent even half of the total invest-ments in the Southeast region. In terms of investment volume, the differ-ences between the Southeast region and the Border region are even morepronounced, because most capital-intensive investments, almost 80 per-cent, were concentrated in the Southeast region, while investments in theautomotive sector in the Border region were generally characterized bylabor-intensive operations, such as the assembly of auto parts.

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Figure 2. New investments in the state of Coahuila, 1994-1999,by sub-region and by economic sector

automobile industrygarment industryothers

1 investment

0 100 km Sources: Based on Montemayor (1999).“Anexo”, pp. 108-110; SEFOMEC (1999).



In contrast to the garment industry, the automotive industry is domina-ted by a few transnational companies that maintain high quality standardsand high entry barriers. Because of the high level of capital investmentrequired to access the automotive industry, it is practically impossible forlocal small- and medium-sized enterprises (SMEs) to become suppliers. Infact, the dominant company usually invites their own preferential suppliersto establish new plants close to their new production sites. These suppliersare in many cases also internationally renowned firms. Altenburg andMeyer-Stamer (1999; pp. 1703-1704) describe the phenomenon of the auto-motive cluster in the Southeast region of Coahuila as a typical example of agroup of transnational companies, also qualified as an “enclave economy”(cf. Gallagher & Zarsky, 2007). For many local companies the best oppor-tunities to become part of the automotive value chain are limited to findingniche markets for products with low added value, such as the production ofpackaging materials, molds and other types of labor-intensive craftsmanship.

The other sectorsWhat stands out for the other economic sectors is, above all, the amountof new investments in the Center region (Figure 2). Much of these invest-ments were made by the Grupo Acerero del Norte (GAN) between 1993and 1997, in its effort to modernize AHMSA’s operations and establish ametal-mechanic cluster which could compete in the global steel market.With foreign loans and technical assistance, GAN was able to improve theexport performance of AHMSA, which resulted in a balance surplus in1996 for the first time in many years. However, the positive results ofAHMSA did not provide a new economic boost to the Center region andthe Carbonífera. On the contrary, the modernization of AHMSA went atthe expense of employment. Nor was there any positive effect for otherbusinesses in the Center region since GAN began to demand higher quali-ty standards from their suppliers. In many cases this required new invest-ments which were difficult or impossible to achieve for many local SMEs(Corrales, 2004; pp. 139-141).To make matters worse, the economic growth of AHMSA in the 1990s

did not last long. The Asian financial crisis of 1997 caused serious imbal-

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ances in the global steel market, resulting in a wave of cheap steel fromSouth Korea (Espinosa, 2002; p. 56). GAN was forced to lower theirprices, but as steel prices did not recover, the company could not repaytheir loans to the 150 national and international banks which it hadadressed the overcome the crisis. Finally, at the beginning of 1999, GANunilaterally decided to suspend payments until it would find an attractivepartner to face the challenges of the global steel market. Several negotia-tions, including IMSA of the Grupo Monterrey and Aceralia from Spain,failed. Consequently, AHMSA continued production at increasing lossesand the economy of the Center region remained largely paralyzed, waitingfor a new economic boost.

ConclusionsFor a long time, the Mexican development under NAFTA had served as anexample for other developing countries. Several evaluations have been con-ducted on the lessons of the Mexican case for other countries that wereinterested in signing free trade agreements. There is a great variety betweenthe qualifications of the reports, both positive and negative, depending onthe emphasis and focus of the authors (cf. Audley et al., 2003; Ledermanet al., 2003; Kose et al., 2004; Smith & Lindblad, 2003; Ramírez, 2003;Stiglitz, 2004). Although, in general, those directly involved in the creationof NAFTA point out that Mexico has made progress in many areas, itcannot be ignored that even the World Bank and the IMF indicate that thepositive effects could have been more numerous (Lederman et al., 2003;Kose et al., 2004). This conclusion again demonstrates that it is not easyto answer the question whether free trade is an appropriate instrument fordevelopment or not.Coahuila’s experience under NAFTA shows that free trade may induce

higher economic growth in terms of GDP and exports, but it also showsthat integration into the global economy does not provide welfare for all,nor is it an easy or secure way to prosperity. GDP growth has proven tobe highly selective, both geographically and socially. Of course, the liber-alization of the economy has improved the prospects of the selectedgroups that were already in favorable positions to exploit the new oppor-



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tunities offered by the world market. In other words, it generally favoredthe largest and most dynamic sectors, which already were engaged inexport activities. On the other hand, many SMEs were marginalized as aresult of the increasing international competition, and wages and benefitsof large groups of workers were drastically reduced, or even becameunemployed, and as such were completely excluded from the benefits ofliberalization.It is extremely difficult to isolate the effects of NAFTA for Mexico

from other major economic events that occurred during the past decade.Although the strategy of Montemayor has certainly contributed to theeconomic growth of the state of Coahuila, the results were strongly influ-enced by the long boom of the US economy during the second half of the1990s, combined with the effects of the devaluation of 1994-1995 on thecost of Mexican labor (cf. Cypher, 2001; Korzeniewicz & Smith, 2000).The consequences of the slowdown in consumption in the United States atthe end of 2000 —which became a global economic downturn followingthe terrorist attacks of September 11, 2001— had immediate effects on theMexican economy. Many Mexican export manufacturing companiesreduced their number of employees, both temporarily and definitively(INEGI, 2004). This trend intensified further as a result of more aggres-sive international competition, both with regard to foreign investmentsand manufacturing for export. Above all, China has become more andmore competitive, overtaking Mexico in terms of exports to the UnitedStates in 2003 (Sargent & Matthews, 2003).The ease with which many companies moved their operations from

Mexico to countries with even lower wages once the economic conditionsbecame less favorable, justifies questions about the sustainability of adevelopment strategy based on free trade. Ideally, clusters offer greatopportunities for SMEs to obtain benefits that were previously reservedexclusively for large companies, while at the same time increasing theirlevel of learning (cf. Humphrey, 1995). However, the qualitative analysisof the economic growth in Coahuila in the second half of the 1990s showsthat the growth of GDP, exports and employment appears to be more theresult of external factors rather than endogenous economic growth (de



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Bell, 2005). As a result, there is little evidence of local learning, innovationand improvement, aspects promoted in political circles as the great advan-tages to pursue clusters.While capable of generating economic growth in the short term, the

development strategy based solely on attracting new investments to stim-ulate the export industry offers few structural solutions in the long term.Instead, it encompasses the real danger of entering a “race-to-the-bot-tom”, when new competitive pressures are countered with cutting costs—mostly labor— rather than investing in innovation (Ramírez, 2003; p.883). The examples from Asia have shown that in order to establish sus-tainable development with equity, substantial investments are needed inareas like education, innovation and infrastructure (cf. Audley et al.,2003). Consequently, with regard to the sustainability of the dominantdevelopment model, the key question is not whether regions should beintegrated in the global economy or not, but emphasis should be placed onthe way in which regions must be integrated.

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