Dallas Fed explores Texas' economic growth factors, banks' use of derivatives and Mexico's export competition
For immediate release: March 26, 2003
DALLAS—The latest issue of the Federal Reserve Bank of Dallas’ Southwest Economy examines factors determining Texas’ economic growth, banks’ use of derivatives and Mexico’s export competition.
In “What Wages and Property Values Say about Texas,” economists Stephen P. Brown and Lori L. Taylor conclude that when Texas’ rapid population and employment growth over the past decade is taken into account, it becomes apparent that Texas offers a combination of wages, property values, natural amenities and government policies attractive to labor. That attractiveness has helped propel the state’s economic growth. The authors also find that low educational attainment and a high share of taxes paid by business have helped keep the state’s labor productivity below the national average.
In “Debunking Derivatives Delirium,” economists Jeffery W. Gunther and Thomas F. Siems assert that free-market policies have lived up to their promise of promoting innovation and more effective risk management among banks. Many factors contribute to banking system resilience, but the growing use of risk management tools, including derivatives, has played a major role. Financial innovation opens new doors for segmenting and dispersing risk. Banking supervisors are responding to greater financial complexity with better disclosure requirements and enhanced capital standards. Beyond that, the authors contend, greater government control over derivatives is a bad idea.
The competition between Mexico and China for market share in North America is heating up. Economist Erwan Quintin assesses this new competition in “The Giant in Mexico's Rearview Mirror.” Mexican companies complain of rising labor costs, and the Fox administration has accused China of luring away investors through practices that violate international trade agreements. Despite the increased competition, however, Mexico remains an attractive place to conduct business. Competition will erode exports from some Mexican industries, but Quintin concludes that Mexico will remain dominant in those manufacturing sectors where transportation costs are high and skills require time to develop. He also notes that Mexico could improve its competitive position by addressing its chronic weaknesses.
Find the March/April issue of Southwest Economy online at www.dallasfed.org under the What's New heading.
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