Cross-Border Shopping’s Impact - Most sales to Mexican nationals are in cash, making it difficult to measure cross-border shopping activity along the U.S.–Mexico border. To produce an estimate, Banco de México conducts surveys at border crossing points, asking returning individuals how much they spent in the United States or Mexico. In most years, Mexican shoppers spend more money on the U.S. side of the border than U.S. shoppers spend on the Mexican side.
Dallas Fed assistant economist Roberto Coronado took a different approach to measuring cross-border shopping. He used local personal income and employment to estimate the purchasing power of local residents. If an area’s retail sales are larger than what local residents are spending, the difference is likely due to shopping by Mexican nationals.
Coronado estimated net exported retail sales for El Paso, Laredo, McAllen and Brownsville from the late 1970s to 2001. Mexicans accounted for $2.3 billion a year in retail spending—26.4 percent of total retail trade in the four border cities and about 2 percent of Texas’ overall retail sales. Laredo depended most on cross-border business, with 51 percent of its retail sales going to Mexican shoppers. McAllen followed at 36 percent, Brownsville at 26 percent and El Paso at 11 percent.
Why the large differences? Coronado suggested two reasons. First, Laredo, McAllen and Brownsville get the bulk of their nonresident retail sales from the Mexican interior, mostly shoppers from Monterrey, the country’s third-largest city. Second, El Paso is the biggest of the four Texas border cities, and therefore the size of Mexican spending relative to local spending is not as large.
Exchange-rate fluctuations can quickly make goods and services across the border either cheaper or more expensive for international shoppers. As a result, retail sales to Mexican nationals are sensitive to swings in the peso’s value. The sensitivity, however, isn’t uniform across the border cities. Coronado found that retail trade in Laredo, McAllen and Brownsville is highly affected by changes in the value of the peso, while the El Paso retail sector is not.
Suad Ghaddar, an economist with the Center for Border Economic Studies at the University of Texas–Pan American, estimated Mexican visitors’ economic impact on South Texas’ Rio Grande Valley at $3 billion in 2004, including both direct and indirect spending. These expenditures supported more than 64,000 jobs. On the California border, Ghaddar put Mexican nationals’ total impact at about $4.5 billion, supporting 67,000 jobs. Jobs tied to cross-border retail trade account for a large portion of employment in some areas—39 percent in California’s Imperial County and 17 percent in Texas’ Webb County, for example.
Alberta Charney, research economist with the University of Arizona’s Economic and Business Research Center, concluded that direct spending by Mexican visitors to Arizona totaled $963 million in 2001. With ripple effects, the economic impact rose to nearly $1.6 billion. The visitors came mostly from the adjacent Mexican state of Sonora, and 86 percent of the Mexican spending took place in the Arizona border counties of Pima, Santa Cruz, Yuma and Cochise.
In 2001, Charney conducted a yearlong survey of Mexican visitors leaving Arizona at border ports of entry in San Luis, Lukeville, Sasabe, Nogales, Naco and Douglas and international airports in Phoenix and Tucson. She reported that 72 percent of the respondents gave shopping as the primary reason for their trip, followed by work, at 14 percent, and family visits, at 8 percent. All told, 41 percent of their shopping took place in department stores and 25 percent in grocery stores.
Influences on Retailing - Coronado showed that the peso’s value creates swings in U.S.–Mexico cross-border retailing. Jeff Campbell, a senior economist with the Federal Reserve Bank of Chicago, indicated the same is true on the U.S.–Canada frontier. According to Campbell, demand shocks from changes in the real exchange rate are more likely to impact the number of businesses than the number of employees per business. His results highlight the turbulence created on international borders by large exchange-rate movements. For a given loss of employment, the effects on real estate, banking and other sectors are likely to be larger for shocks that put retailers out of business than for those that simply reduce retail employment.
John Hadjimarcou, a marketing and management professor at the University of Texas at El Paso, went a step further, studying not only the consequences of currency devaluations but also the impact of cross-border competition in the retail sector. Out of a sample of 200 El Paso retailers, 176 completed a survey, with 54.5 percent indicating that at least half their sales were to Mexican nationals.
Hadjimarcou found that retailers concerned about exchange-rate fluctuations tailor their product mix to attract Mexican customers. He was surprised to learn, however, that El Paso retailers don’t pay much attention to competitors on the Mexican side of the border. In a follow-up survey, he discovered this is because they believe the Mexican stores cannot offer the same quality, range of merchandise, atmosphere and prices.
Richard Adkisson, economics professor at New Mexico State University, focused on the U.S.–Mexico border in studying retail trade after implementation of the North American Free Trade Agreement in 1994. Because NAFTA lowered trade barriers between the two countries, more U.S. products and retailers are available in Mexico, reducing the demand for retail goods on the American side of the border. Adkisson found a drop in retail sales of some items on the U.S. side under NAFTA, particularly groceries and furniture. Because a sharp peso devaluation occurred as NAFTA went into effect, however, it is difficult to determine whether the sales decline was due to NAFTA or the devaluation.
