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The Enclave Economy:
Foreign Investment and Sustainable
Development in Mexico's Silicon Valley

Kevin P. Gallagher and Lyuba Zarsky
The MIT Press

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$21.00/£13.95 (Paper)

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Foreign investment has been widely perceived as a panacea for developing countries--as a way to reduce poverty and kick-start sustainable modern industries. The Enclave Economy calls this prescription into question, showing that Mexico's post-NAFTA experience of foreign direct investment in its information technology sector, particularly in the Guadalajara region, did not result in the expected benefits. Charting the rise and fall of Mexico's "Silicon Valley," the authors explore issues that resonate through much of Latin America and the developing world: the social, economic, and environmental effects of market-driven globalization.

In the 1990s, Mexico was a poster child for globalization, throwing open its borders to trade and foreign investment, embracing NAFTA, and reducing the government’s role in strengthening domestic industry. But The Enclave Economy shows that although Mexico was initially successful in attracting multinational corporations, foreign investments waned in the absence of active government support and as China became increasingly competitive. Moreover, the authors find that foreign investment created an "enclave economy" the benefits of which were confined to an international sector not connected to the wider Mexican economy. In fact, foreign investment put many local IT firms out of business and transferred only limited amounts of environmentally sound technology. The authors suggest policies and strategies that will enable Mexico and other developing countries to foster foreign investment for sustainable development in the future.

Kevin P. Gallagher is Assistant Professor of International Relations at Boston University and Senior Researcher at the Global Development and Environment Institute at Tufts University. He is the author of Free Trade and the Environment: Mexico, NAFTA, and Beyond and other books.

Lyuba Zarsky is an Associate Professor of international environmental policy at the Monterey Institute for International Affairs and Senior Research Fellow at the Global Development and Environment Institute. She is a contributing editor of Investment for Sustainable Development: Balancing Rights and Rewards.

Advance praise for The Enclave Economy:

"Mexico was the ninth biggest economy in the world and the greatest recipient of foreign
direct investment (FDI) in Latin America in 2007. Why has FDI failed to transfer technology, develop cleaner production processes, form human capital, and offer high quality employment specifically in the IT industry in such a country? This book provides excellent reflections on these issues as well as on the inadequate public policies behind these frustrating results. A very valuable contribution to the search for a new, successful economic development strategy for Mexico and other developing countries."

--Claudia Schatan, Economic Commission for Latin America and the Caribbean, Mexico City, and author of Maquiladoras and the Environment in Mexico

"This meticulously researched and lucidly argued volume is pathbreaking for its analytical contribution, empirical findings, and policy lessons. Gallagher and Zarsky outline the elements of a theoretical framework of 'sustainable industrial development' that incorporates not only economic considerations, but also the often neglected but vitally important social and environmental aspects of the development process. They test this framework for Mexico, and find that foreign investment in the much sought-after high technology sector fell far short of its promise. Their framework and findings have profound lessons for developing countries seeking to industrialize in an environmentally constrained world, suggesting that without the proper nation-state policies in place that can be kept in check by civil society, market liberalization may not lead to their sustainable industrial development."
--Alice H. Amsden, Barton L. Weller Professor of political economy, MIT, author of Escape from Empire: The Developing World's Journey Through Heaven and Hell

"This very informative and well-written book reviews the relationship between foreign direct investment and sustainable development in Mexico's information technology sector. It is original in that it links disciplines that are too often separated--namely the economic, social, and environmental impacts of the electronics manufacturing sector. It is a significant contribution because of the research conclusions as well as methodology used. The cross-disciplinary analysis and the significant field research put this book very much on the cutting edge of practical research."
--Ted Smith, Senior Strategist, Silicon Valley Toxics Coalition and Coordinator, International Campaign for Responsible Technology

For a summary of the policy implications of The Enclave Economy, read:
"Multinationals and the “Maquila Mindset” in Mexico’s Silicon Valley," by Lyuba Zarsky and Kevin P. Gallagher, Americas Program Policy Brief, Interhemispheric Resource Center, October 12, 2007.

Other books by the authors:

Putting Development First: The Importance of Policy Space in the WTO and IFIs

Free Trade and the Environment: Mexico, NAFTA and Beyond

International Trade and Sustainable Development

International Investment for Sustainable Development

For more on GDAE’s Globalization and Sustainable Development Program:

For more on the Sustainable Industrial Development Project:

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