One of Mexico’s most talked-about economic events this decade has been the downturn in maquiladora, or in-bond export, plants. These plants account for close to half of all Mexican exports to the United States, so it’s no wonder they receive so much attention.

      Between October 2000 and March 2002, maquiladora employment fell by nearly 277,000, or about 21 percent. Employment recovered through spring of 2003, then fizzled again. The usual causes of maquiladora fluctuations (U.S. demand and Mexican cost factors) have begun to move in directions that induce growth. Are these changes enough to spur a recovery? Maquiladora employment has begun to edge up, but pressures in both directions complicate the answer.

      To understand more than simple generalities about maquiladoras today, two factors deserve attention. First, maquiladoras and their counterparts in other countries are chronically volatile. Maquiladora employment and output fluctuations — both down and up — are greater than in same-industry plants in high-income industrialized countries. Second, while the latest downturn has been spread broadly across maquiladora industries, some have fallen harder than others. Some industries have recovered a little and appear ready to move back up. Others look poised for further decline.

Employment volatility "Employment volatility"

      Between September 1998 and October 2003, overall maquiladora employment in Mexico rose more than it fell. Employment peaks in October 2000 and then falls hard and fast. Newspapers make much of this drop, but they scarcely ever discuss the upward move over the preceding two years. Maquiladora employment rose more between September 1998 and September 2000 than it fell in the following three years. Despite the sharp decline since October 2000, maquiladora employment has never fallen back to September 1998 levels.

      Maquiladoras act as shock absorbers for manufacturing operations in industrial countries. In any country, certain industries have long-term upward or downward trends. But in the short run, firms in high-income countries use foreign export-processing zone plants such as maquiladoras to take the brunt of shocks to home demand. A given increase or decline in U.S. industrial production triggers much larger increases or...

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