Beyond cheap labor: Lessons for developing economies

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Beyond cheap labor: Lessons for developing economies

China's economic surge and entry into the World Trade Organization are sparking alarm across the developing world��particularly in middle-income nations such as Brazil, Poland, Portugal, and South Korea, where rising standards of living make their position as low-wage producers and exporters increasingly tenuous. Mexico, for example, has lost more than 270,000 jobs since 2000 in the assembly factories that sprouted on the US border before and after the passage of NAFTA. Although the fear of job losses to other countries is often exploited, economies can and must evolve to meet the challenge of foreign competitors.

The take-away

Instead of trying to win back low-wage assembly jobs, Mexico and other middle-income nations must create jobs in higher-value-added activities to continue moving up the development path. Unfortunately, the fixation on China��to say nothing of political rhetoric against globalization��is blocking reform efforts in many countries.

This article includes the following exhibits:

• Exhibit 1: Mexico's growing prosperity
• Exhibit 2: Distribution of foreign direct investment in Mexico
• Exhibit 3: Trends in Mexican assembly operations, 1994�C2004

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