Price and Distance Effects on Mexican Cross-Border Shopping:Implications for a Borderlands Economy

Common belief in border regions holds that Mexican cross-border shoppers play a larger role in the regional economic base than they do and that NAFTA will provide a bigger stimulus to the regional economy than it is likely. In the regional economy than it is likely. In the first case, price elasticities are implicitly underestimated as highly inelastic and in the latter case, overestimated as highly elastic. This paper provides empirical evidence on the effects of distance and real exchange rates as price proxies on both field survey and population-imputed estimates of cross-border shopping. After estimating both distance-based and real exchange rate-based estimates of price elasticities of Mexican shopper demand for U.S. border-region goods, implications are obtained concerning the relative importance for U.S. border-regon economies of more distant Mexican markets, and the likely impacts of NAFTA.