Chapter 17: Offshore assembly and service industries in Latin America
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Several factors have played important roles in attracting low-skilled manufacturing jobs to relatively few developing countries, mostly those with large labor markets. Mexico and Brazil, for example, are the main countries that have attracted such jobs within Latin America. Proximity to the US market and local programs to facilitate cross-border movement of intermediate goods, such as Mexico’s Border Industrialization Program (which created the maquiladora industry), have been crucial in this regard. In addition, history shows that two other factors have played a key role in the growth of the offshore-assembly industry in developing countries, namely technological advances that have lowered transportation costs and differences in cost of labor between developing and industrialized countries. Reductions in transportation costs have made it economically feasible for US manufacturers to offshore portions of their production to developing countries. Glaeser and Kohlhase (2003) observe that railroad costs (in 2001 dollars) declined from more than 18 cents per ton-mile in 1890 to 2.3 cents in 2002, and that trucking costs (in 2001 dollars) fell from 38 cents a ton-mile in 1985 to 28 cents a ton-mile in 1999. They also calculate the changes in ratio of the nation’s freight bill to GDP – for highways, rail, navigable waterways, and pipelines – between 1960 and 2000, finding a decline from 0.09 in 1960 to 0.06 in 2002. Most of that decrease took place between 1960 and 1990, the period when offshore assembly first took off.

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