Cross-Border Shopping and Employment Patterns in the Southwestern United States

Abstract

Price differentials, among other factors, persuade many residents of Northern Mexico to shop in the Southwestern United States border region. Employment patterns in the latter region are studied using a set of control variables and two indicators that are likely to influence cross-border shopping patterns. The first is a real exchange rate index, which captures changes in relative prices in the United States and Mexico. The second is real per capita gross state product in Mexican states adjacent to the international boundary. Both of these variables are found to impact retail and restaurant employment in the United States border zone, confirming that cross-border shopping influences labor market conditions in that region. Furthermore, the estimated elasticities vary across retail sub-sectors in ways that are generally consistent with prior research. Overall, the results suggest that economic setbacks in Northern Mexico and real peso depreciations are likely to have adverse consequences for important sectors of border economies in the United States.