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Homicides, exchange rates, and northern border retail activity in Mexico

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Abstract

Exchange rate fluctuations and international business cycles may acutely affect retail sales in border regions where residents have the option of shopping in the neighboring country. This study examines the determinants of retail sales in six cities located along Mexico’s northern border. Retail activity in these cities is found to increase in tandem with real depreciations of the peso, lower unemployment rates in neighboring US counties, and increased border crossings. Taken together, these results suggest that cross-border shopping contributes to retail activity in the northern border region of Mexico. The opportunities for cross-border shopping may also condition the impact of violent crime on border region retail sales. In recent years, northern Mexico has been deeply affected by a crime wave associated with competition among drug cartels. Homicides related to organized crime are found to have a statistically significant negative impact on retail sales. A surge in crime levels may stifle retail activity in affected areas as extortion and attacks force some stores to close or reduce operating schedules at the same time that some potential customers elect to shop in relatively safer districts across the international divide.

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Acknowledgments

Financial support for this research was provided by Hunt Communities, El Paso Water Utilities, JPMorgan Chase Bank of El Paso, Texas Department of Transportation, UTEP Center for the Study of Western Hemispheric Trade, Hunt Institute for Global Competitiveness, and a UTEP College of Business Administration Faculty Research Grant. Econometric research assistance was provided by Carlos Morales, Pedro Niño, and Francisco Pallares.

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  1. Department of Economics and Finance, University of Texas at El Paso, 500 West University Avenue, El Paso, TX, 79968-0543, USA

    Thomas M. Fullerton Jr. & Adam G. Walke

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  1. Thomas M. Fullerton Jr.
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  2. Adam G. Walke
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Correspondence to Thomas M. Fullerton Jr..

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Fullerton, T.M., Walke, A.G. Homicides, exchange rates, and northern border retail activity in Mexico. Ann Reg Sci 53, 631–647 (2014). https://doi.org/10.1007/s00168-014-0636-y

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