Baja California and San Diego Trans-Border Economics.The San Diego Tijuana Transborder Economy 2013. 

1. Baja California and San Diego Trans-Border Economics.
The San Diego Tijuana Transborder Economy
Alejandro Díaz-Bautista, Ph.D.
Professor of International Economics at Colef
and
Distinguished Researcher
National Council of Science and Technology
adiazbau@gmail.com
Friday, November 16, 2012, at the Westgate Hotel,
San Diego. Vital Issues and Global Opportunities for the
2013 Economy of our Bi-National Region.

2. Introduction
 Mexico is doing well in economic terms:
low debt, low deficit and moderate
economic growth.
 Emerging markets are in much better
shape, with higher levels of economic
growth, compared to most advanced
economies .
 Unemployment is a major problem for
emerging and advanced economies during
2012.

3. The United States- Mexico border region

4. United States - Mexico Border States
Description:
• 10 border states.
• Nearly 2,000-mile (3,169 km or 1,969 miles) of international
border.
• Population: more than 83 million.

5. The United States- Mexico border region
 The ten Border States represent the largest binational regional economy in
the world, with over 83 million people and a combined economy ranked
estimated at number four in the world in economic terms.
 This region has 51 border crossings, 32 bridges and seven federal railway
routes, placing it as the busiest border in the world, with over 350 million
people cross the border each year.
 The economic slowdown and unemployment are among the issues that
currently affect the people on both sides of the border.
 The state of Arizona had an unemployment rate of 9.4 percent, Texas, 8.4
percent; New Mexico, 6.7 percent, and California, 12 percent (the
highest), according to the figures from July 2011, compared to an
unemployment rate of 9.1 percent in the United States during July 2011.
 In July 2011, the northern border states of Mexico were also showing high
unemployment rates. The state of Baja California had an unemployment
rate of 5.05 percent, Sonora, 5.65 percent; Chihuahua, 6.81 percent;
Coahuila, 6.27 percent; Nuevo Leon, 6.49 percent; and Tamaulipas, 8.81
percent (the highest).

6. Unemployment in Mexico (2010)

7. The United States Mexico
Border Unemployment (2012)
 Official figures from the National Institute of Statistics and
Geography (INEGI) show that during the second quarter of 2012,
the northern border states in Mexico continue to show high
unemployment rates. Chihuahua had a 7% unemployment rate,
Tamaulipas with 6%; Sonora with 5.4%, Coahuila with 5.5%,
Nuevo Leon with 6.4% , and Baja California with a 6.1%
unemployment rate. On average, the unemployment rate of the
northern border states of Mexico is estimated close to 6.06%
during the second quarter of 2012.
 Furthermore, at the end of July 2012, the southern U.S. border
states also suffered with high unemployment rates: California with
10.7%, Arizona with 8.3%, 6.6% for New Mexico, and Texas with
an unemployment rate of 7.2 percent. On average, the
unemployment rate of the southern border states of the United
States is estimated at 6.06% during the month of July 2012.

8. Unemployment in California

9. Unemployment in San Diego

10. VAT/GST rates in OECD member countries
2010 2011
VAT
Australia 2000 10.0 10.0
Austria3 1973 20.0 20.0
Belgium 1971 21.0 21.0
4
Canada 1991 5.0 5.0
Chile 1975 19.0 19.0
Czech Republic1993 20.0 20.0
Possible increase in
Denmark 1967 25.0 25.0
 Estonia 1991 20.0 20.0
Finland 1994 22.0 23.0
the VAT rate in 2013 France5
Germany
1968
1968
19.6
19.0
19.6
19.0
in Mexico.
6
Greece 1987 19.0 23.0
Hungary 1988 25.0 25.0
Iceland 1989 25.5 25.5
Ireland 1972 21.0 21.0
Israel7 1976 16.0 16.0
Italy 1973 20.0 20.0
Japan 1989 5.0 5.0
 Mexico has a VAT of Korea 1977
Luxembourg 1970
8
10.0
15.0
10.0
15.0
11% in the border
Mexico 1980 16.0 16.0
Netherlands 1969 19.0 19.0
New Zealand 1986 12.5 15.0
region and 16% for
Norway 1970 25.0 25.0
Poland 1993 22.0 23.0
9
Portugal 1986 20.0 23
the rest of the Slovak Republic993
Slovenia
1
1999
19.0
20.0
20.0
20.0
country.
10
Spain 1986 16.0 18.0
Sweden 1969 25.0 25.0
Switzerland 1995 7.6 8.0
Turkey 1985 18.0 18
United Kingdom1973 17.5 20.0
Unweighted average 18.0 18.5

11. The United States Mexico
Border
 People cross the United States
Mexico border every day to do
business, go shopping, visit family
members, or simply to enjoy each
other’s tourism.
 This results in around 350 million
crossings and almost $400 billion in
trade each year, making it the most
important border region in the world.

12. Baja California and California Economic Integration
 Economic Integration can also be seen at the regional level.
 During 2010, the official data shows that the number of
northbound crossers from Baja California to California
reached 61,105,484 people, the majority of whom, crossed
in personal vehicles. Baja California residents constitute an
important component in the economy of communities and
counties on the U.S. side of the border, like San Diego
County.
 These visitors from Baja California enter the U.S. regularly
for shopping, tourism, work, and socialization with family
and friends. It’s a well known fact that cross border visitors
from Mexico have a significant economic impact on U.S.
communities and counties.

13. The Border Economic Zone (BEZ) in Baja California
 A major challenge for the commercial
sector of Baja California is without a
doubt, the increase consumer spending of
Baja California residents into the U.S.
market, which has been estimated at
around 6 billion dollars a year.
 With the implementation of the BEZ in
2012, Baja California wants to recover
part of the consumer spending by Baja
residents in California.
 The BEZ is intended to promote the
consumption of regionally made goods in
the Baja California region. The economic
impact of the implementation of the BEZ
could be as high as an 8% reduction of
spending by Baja California residents in
California.

14. The Border Economic Zone (BEZ)
 A considerable amount of money is spent on
a multitude of retail items including
groceries, clothing, appliances, tourism and
services.
 As a measure to increase consumer spending
in the state of Baja California, the
government and business sectors of Baja
California in conjunction with the State
Government and the Federal Government
proposed the new Border Economic Zone
(BEZ) in 2012.

15. “El Buen Fin” Program in Mexico
 The idea of “El Buen Fin” program in Mexico was
created as a private initiative to enforce the economic
activity in Mexico during November of 2011. The
initiative was presented through a program created by
the federal government and some of the most
important media networks of Mexico.
 The program is similar, in some way, to the famous
“Black Friday” of the United States, while this day
represents the day with highest consumer spending,
and when the commercial sector shows their best
offers and the biggest discounts throughout the year.
 The economic impact of the implementation of the “El
Buen Fin Program” was estimated as high as a 2%
reduction of spending by Baja California residents in
California during 2011.

16. Economic Impacts and Expenditures
 Shopping is the primary reason to cross into the U.S. for
Baja California residents. Depending on the study, 42 to
68% of border crossers identify shopping as the primary
reason for the visit into Southern California. Other reasons
are social in nature, like visiting family and friends, or are
work related.
 During 2010, around 74 percent of crossers entered
California in their private vehicles, since a car allows them
freedom of movement between different shopping locations
in the U.S. as well as enough room to handle the volume of
their purchases.
 The estimated average daily expenditures reported by Baja
California visitors into San Diego County and California in
various studies ranges from US $140 per trip to $300 per
trip. The current estimation uses an average amount of
expenditures per trip of $240 per trip as the base case
scenario.

17. Annual Retail Sales in California by Baja California Border Crossers
(Economic Growth Scenario)
9000000000
8000000000
7000000000
Low Spend. Case
6000000000
High Spend. Case
5000000000
Dollars
Base Spend. Case
4000000000
El Buen Fin Program
3000000000
BEZ
2000000000
1000000000
0
2010 2011 2012 2013 2014
year

18. California Economic Impacts
 The California and Baja California border region remains an
example of social and economic integration in North
America, where cross-border shopping is only one aspect of
that economic reality in the border region.
 Mexican citizens cross frequently into the U.S. to shop,
work, dine, vacation, and visit friends and family. What
they spend on those visits results in a key contribution to
local border economies in California.
 The results reveal annual retail sales by Baja California
Cross Border Visitors in the range of 5.9 to 6.8 billion
dollars along the U.S.-Mexico border, depending on the
complete implementation of the Border Economic Zone
(BEZ) in Baja California and the “El Buen Fin Program”.
 The base case scenario shows that Baja California
consumer and economic drain into the U.S. market is
estimated at around 5.9 billion dollars in 2012 and 6.2
billion dollars in 2014, with the implementation of the
Border Economic Zone (BEZ).

19. San Diego County Cross Border Retail Sales 2010-2014
7000000000
6000000000
Low Spend. Case
5000000000
High Spend. Case
4000000000
Dollars
Base Spend. Case
3000000000
El Buen Fin Program
2000000000
BEZ
1000000000
0
2010 2011 2012 2013 2014
Year

20. San Diego County Economic Impacts
 The results reveal a substantial overall San Diego
County cross border retail sales in the order of 4
billion dollars during 2012 along the Baja California
– San Diego County border.
 Expenditures by cross border residents of Baja
California are estimated at 4.2 billion dollars in San
Diego County during 2014 using the base case
spending scenario and with the implementation of
the BEZ.
 The San Diego-Carlsbad-San Marcos metropolitan
area’s GDP in 2009 was estimated at around
$171.4 billion, ranking 16th in the United States,
according to the federal bureau of Economic
Analysis.
 In San Diego County, the Hispanic population
increased from 27% in 2000 to 32% in 2010, with
the resulting significant contribution to the regional
economy.

21.  From 1995 to 2010, the official estimates indicate
more than 450 million personal vehicle crossings
with 966 million passengers, and more than 260
million pedestrian crossings, from Baja California to
California.
 Expenditures by cross border residents of Baja
California in San Diego County represents around
2.4% of the annual gross domestic product in San
Diego County.
 A new economic and competitive binational Mega-
region is evolving. The Baja California – Southern
California Mega Region includes Los Angeles
County, Orange County, Riverside, Imperial and
San Diego Counties on the California side, and
Tijuana, Rosarito, Tecate and the port of Ensenada
on the Baja California side.

23. Global FDI Flows 2011- 2012
 Global FDI inflows are likely to be around $1.6
trillion.
 Foreign direct investments worldwide are
projected to return to pre-crisis 2008 levels this
year, with inflows expected to be up to USD 1.6
trillion.
 Recovery of FDI inflows would continue this year
while pegging the amount at around USD 1.4
trillion to USD 1.6 trillion.
 Brought down by the 2008 financial meltdown
and its ripple effects, FDI worldwide tumbled to
just USD 1.19 trillion in 2009. Last year, the
inflows were slightly better at USD 1.24 trillion.

24. FDI in the NAFTA Region
 The NAFTA region has created new opportunities
of investment and trade for the companies of all
3 countries, and 50 % of FDI in NAFTA is
between trade partners. For Mexico, the United
States is the main source of FDI.
 FDI is of great importance the Northern Border
Mexican Region, and by the year 2004, FDI in the
Northern Border States of Mexico represented
18.7% of total FDI at the national level. The
Northern Border States that are considered in this
study are Baja California, Sonora, Chihuahua,
Coahuila, Nuevo Leon and Tamaulipas.

25. Surface Trade between U.S. and NAFTA
Countries : 1995 – 2011.
 Surface transportation trade between the United States and
its North American Free Trade Agreement (NAFTA) partners
Canada and Mexico increased by 14.3 percent in 2011
compared to 2010, valued at $904 billion in 2011,
according to official data by the Bureau of Transportation
Statistics (BTS) of the U.S. Department of Transportation.
 The 14.3 percent increase in trade was the third largest
year-to-year increase for the years covered by these data.
 The $904 billion in U.S.-NAFTA trade was the highest
amount since NAFTA went into effect in 1994.

26. Top Five Commodities Transported between the
U.S. and Mexico by All Surface Modes of
Transportation, 2011. (In millions).
Commodities Exports Imports Total
Electrical
Machinery;
29,672 50,799 80,471
Equipment and
Parts
Computer-
Related
29,703 37,864 67,567
Machinery and
Parts
Vehicles Other
17,726 43,446 61,172
than Railway
Plastics 12,570 3,369 15,939
Measuring and
Testing 4,083 9,348 13,431
Equipment

27. Top 10 States Exporting to
Mexico, 2009 to 2011.

28. United States Mexico Trade
 The U.S. is Mexico’s largest trading partner,
buying more than 80% of Mexican exports during
2010. Mexico is the third largest U.S. trading
partner after China (1st) and Canada (2nd).
Bilateral goods trade reached $362 billion in 2010
and in 2009 they totaled $278 billion.
 Mexico and the U.S. do as much business in
goods and services in just over a month as
Mexico does with all 27 countries of the European
Union combined in a year.

29. U.S. Mexico Trade in 2012
 Total bilateral trade between the U.S. and Mexico has returned to
the levels before the economic downturn and crisis.
 In 2011, Mexico and the United States had almost 461 billion dollars
in trade in goods, which represents more than 1,250 million dollars
or 1.25 billion in trade crossing the border in both directions every
day.
 The economic relationship also adds 39 billion dollars in service
trade.
 Mexico continues to export more of their products and services to
the United States than any other country in the world. The United
States remains the main destination of Mexican goods and services.
 The trade relationship between Mexico and the United States not
only is 'back' but it is getting stronger between Mexico and the
United States in 2012.

30. Migration and border issues

31. Migration and border issues
 Mexico has seen a significant drop in
migration recently. For the first time in 60
years the movement of Mexicans to the
United States is at a net zero.
 A mixture of tougher anti-immigration
legislation in the southern United States,
combined with fewer job prospects in the
US may have forced many Mexicans to
come back home.

32. Migration and border issues
 The net zero migration rate between Mexico and the United
States does not mean that Mexican migrants have not
crossed to the United States between 2011 and 2012.
 The decrease in net Mexican migration is the difference
between those who go to the United States and those who
leave the country and go back to Mexico, a social
phenomenon that began five years ago and already has led
to the first decline in two decades of the undocumented
Mexican population in the United States.

33. Migration at Net Zero

35. Migration and border issues
 The reduction of Mexican migration to the
United States is a social phenomenon that
is explained by the slow evolution of the
U.S. economy during the worst economic
crisis in decades, the labor market
situation in the United States, the
deportations of migrants and the increase
in border enforcement and security. Also
the growing dangers associated with illegal
border crossings, the long-term decline in
Mexico’s birth rates and broader economic
conditions in Mexico.

36. Economic Contribution of
Mexicans to the U.S. Economy

37. Remittances
 The increase in remittances were one
of the key factors of macroeconomic
stability in Mexico, before the
economic crisis of 2008 and 2009.

39. Remittances
 Remittances to Baja California,
increased 8.75 percent in the first
quarter of 2012, compared to the
first quarter of 2011.
 Remittances sent to Baja California
were close to 96.9 million dollars,
representing approximately 17.9
percent of total remittances sent to
the border states of Mexico.

40. Remittances
 Remittances sent by migrants to their families in several regions
such as Baja California, contribute to increase the incomes of the
regional economy, as well as other types of flows such as
development aid and foreign direct investment (FDI).
 With an increase of 8.75% in remittances sent to Baja California
during the first quarter of 2012, it is clear that remittances have
acquired a dimension that gives them a first-magnitude potential
to generate economic growth and development in the state.
Therefore, the remittances sent mainly from the United States are
a particularly attractive area for co-development projects in Baja
California during 2012.
 During the first quarter of 2012, remittances from abroad showed
an increase nationally of 5.3 percent compared to the same period
last year, according to official figures from the Bank of Mexico.
 Data from the central bank showed that in the January-March
period of this year 2012, remittances of Mexicans abroad to their
families in Mexico totaled $ 372 million.

41. Remittances
 Remittances come almost entirely from the U.S.,
and remain one of the most important sources of
foreign income in Mexico.
 Flows to the Mexican economy come from three
main areas: oil, tourism and remittances from
Mexican nationals living abroad.
 During 2011, Mexico managed to stay as the
third recipient of remittances in the world after
India and China.

42. Inflation in July 2012
 During 2012, inflation in Mexico
reached its highest level for a month
of July since 2002.

43. Inflation in 2012
 Inflation in Mexico is
above the inflation target
set by the Bank of Mexico
of 3% plus 1%.
 Inflation has increased in
Mexico due to the increase
in the price of eggs and
other food products and
also because of the
increase in energy prices.

44. Gas Prices in Mexico and the United States

45. Mexico’s Energy and the
Economy in 2012
 Moreover, a decline in
crude production due to
under investment by the
Mexican state oil firm
Petroleos Mexicanos
(Pemex) and a weak
non-oil tax base are
expected to draw funds
away from public
investment.

46. New oil fields in the Gulf of
Mexico
 The discovery of a new
oil field in the Gulf of
Mexico during 2012,
may lead to an increase
in crude production in
Mexico in the medium
and long term.

47. International Reserves

48. International Reserves
 Mexico’s international reserves rose to 161.2 billion in the
week that ended August 24, 2012, according to official data
by the central bank.
 Mexico’s International Reserves are at historic levels in
2012.
 Mexico’s reserves have climbed 13 percent this year, giving
the central bank greater leeway to intervene in the foreign
exchange markets to buy pesos when needed.

49. International Reserves

50. International Reserves
 On June 1, the mexican peso reached its weakest
level against the dollar since March 2009 on
concerns that Europe’s sovereign debt crisis
would affect global economic growth.
 Mexico uses dollar auctions to limit daily declines
in the peso after it tumbled 11 percent against
the dollar in 2011, the most among major Latin
American currencies.
 Since November 2011, the central bank has been
offering $400 million daily at an exchange rate
that’s at least 2 percent weaker than the previous
day.
 This year, the peso has strengthened 5.7 percent
against the dollar.

51. Dollar vs. Peso

52. Global Market Volatility
 Unfortunately, all of the world’s
economies, including the emerging
markets, will be affected to a greater
or lesser degree by the events in
europe, and therefore the challenge
is to mitigate the degree of economic
and financial impact.

53. European sovereign debt crisis
 From late 2009, fears of a
sovereign debt crisis
developed among fiscally
conservative investors
concerning some European
states, with the situation
becoming particularly tense
in early 2010.
 This included euro zone
members Greece, Ireland
and Portugal and also some
EU countries outside the
area.

54. European sovereign debt crisis
 In 2010 the debt crisis was mostly
centered on events in Greece, where the
cost of financing government debt was
rising. On 2 May 2010, the eurozone
countries and the International Monetary
Fund agreed to a €110 billion loan for
Greece, conditional on the implementation
of harsh austerity measures. The Greek
bail-out was followed by a €85 billion
rescue package for Ireland in November,
and a €78 billion bail-out for Portugal in
May 2011.
 This was the first eurozone crisis since its
creation in 1999.
 The sovereign debt crisis that is unfolding
is a fiscal crisis of the western world.

55. Runaway Debt in Europe

56. Public Debt as Percent of GDP

58. Unemployment in the Euro Zone and
the United States

59. Opportunities in Emerging Markets

60. Opportunities in Emerging Markets

61. Mexico’s Economic Growth in 2013
Mexico should approve the structural
reforms to boost the country’s
economic growth and development.
 A new labor reform is underway.
Mexico has the need for a second
generation energy reform, a fiscal
reform and a competitiveness
reform.

63. Baja California and San Diego Trans-Border Economics.
The San Diego Tijuana Transborder Economy
Alejandro Díaz-Bautista, Ph.D.
Professor of International Economics at Colef
and
Distinguished Researcher
National Council of Science and Technology
adiazbau@gmail.com
Friday, November 16, 2012, at the Westgate Hotel,
San Diego. Vital Issues and Global Opportunities for the
2013 Economy of our Bi-National Region.