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Texas Border Cities Show Benefits, Challenges of NAFTA and Free Trade, Says Dallas Fed’s Southwest Economy

For Immediate Release: Dec. 30, 2016

Latest issue also highlights energy’s impact on Texas’ fiscal position and New Mexico’s slow recovery from Great Recession

DALLAS—Texas border cities have largely been able to adjust to trade under the North American Free Trade Agreement (NAFTA), despite job losses tied to increased imports and shifting manufacturing production, according to the latest issue of the Federal Reserve Bank of Dallas’ Southwest Economy.

Texas border cities have capitalized on growth opportunities under NAFTA, writes business economist Jesus Cañas in “Texas Border Cities Illustrate Benefits and Challenges of Trade.” Border cities have seen an increase in service sector jobs tied to trade between Texas, Mexico and Canada, and an increase in jobs tied to foreign direct investment.

In the wake of declining manufacturing jobs, local leaders in border cities have also focused on workforce development by increasing accessibility to two-year associate degree programs, Cañas says. Texas border cities have been narrowing the per capita income gap with the rest of the nation since 1990.

“Nationally, the benefits of trade and openness have not been equally distributed among regions,” Cañas writes. “Thus, Texas and its border communities provide a useful case study of what attributes and strategies might help trade-impacted communities transition to the next level of economic development.”

In “Lingering Energy Bust Depresses, Doesn’t Sink Texas State Budget,” senior research economist Jason Saving finds Texas has been better economically and fiscally positioned than other energy-producing states, thanks to a large and diversified economy.

Texas’ revenue from severance taxes—taxes on oil and natural gas production in the state—has fallen $3.5 billion since 2014, accounting for only 5.2 percent of the state’s revenue in the 2016 fiscal year, Saving notes.

“Because severance taxes are a relatively small part of state revenue and expenditures, developments in the energy sector cannot single-handedly solve (or derail) Texas’ fiscal situation,” Saving writes.

However, severance taxes could help offset reductions in the state budget in 2017, Saving finds. If the Texas energy sector rose from its 2016 levels to 2014 heights, the $3.5 billion increase in severance taxes could offset some budget reductions and make a sizable contribution to the state’s rainy-day fund.

In “New Mexico Recovery Lags amid Energy, Government Sector Weakness,” Roberto Coronado and Marycruz De León say New Mexico’s recovery from the Great Recession has been much weaker than the nation’s, with the state still 20,000 jobs short of its employment level prior to the recession.

Economic challenges for New Mexico include a dependence on government—the state’s largest sector, representing 25 percent of all jobs—and low educational attainment levels, the authors find. In addition, New Mexico trails other states in business climate rankings.

This edition of Southwest Economy also includes an “On the Record” conversation with Adrian Mijares Elizondo, CEO of Cinépolis USA, and a “Spotlight” on Texas electricity production.

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Media contact:
Jennifer Chamberlain
Federal Reserve Bank of Dallas
Phone: (214) 922-6748
E-mail: jennifer.chamberlain@dal.frb.org