Determinants of national supply to the maquiladora industry: the case of Ciudad Juarez

This article presents a theoretical model that explains the lack of vertical integration of the maquiladora industry to the local industry in Ciudad Juarez. In our theoretical model the demand of factors of production depends on the technology of production, the monetary value of the marginal product and the marginal costs of factors of production. In this paper we emphasize the role of the exchange rate in determining the extent of the vertical integration of the maquiladora industry. The theoretical analysis suggests that if the cross marginal productivity between domestic and imported inputs is negative, then depreciations of the exchange rate can induce a lower vertical integration of the industry with domestic suppliers. Moreover, in this article we present evidence of this and other theoretical propositions of our theoretical model. Adapted from the source document.