The economic geography of beer production in the context of trade liberalization and economic nationalism: The Mexican experience

The US is the most important export market for Mexican beer, generally accounting for over 80% of export sales. While the success of Mexican beer can be explained by a number of many factors, geography is the backbone. It explains not only the cultural underpinnings of Mexican beer's success (e.g., immigration) but also other mechanisms and arrangements (e.g., geography-based trade policy) that have powered its industrialization in Mexico. This study examines the economic geography of beer production in Mexico over the past three decades, spanning significant changes in the trade environment and economic policies. Our empirical analysis focuses on exploring the determinants of the spatial distribution of brewing capacity at the municipality level in Mexico. The results show that despite the significant inflow of foreign capital into the Mexican brewing industry and its growing emphasis on the export market (especially the U.S. market), domestic demand in Mexico is still critical to the brewing industry. Additionally, we find that minimum wage is not binding in the Mexican brewing industry, suggesting that the export-oriented industrial development strategy helps justify the industry’ higher labor cost. However, this is not the case with transportation costs. The results show that the brewing capacity is more likely located near freshwater resources and the US-Mexico border, ceteris paribus, to be closer to the key input and the U.S. market. We find no evidence of impacts from the economic nationalism-driven federal economic policies on the brewing industry, suggesting that the brewing industry, as part of the light manufacturing sector, may not have been a target of Mexico's state-led economic reform over the past several decades. We discuss these findings within the context of several policy frameworks that are important to understanding the geography of the Mexican brewing industry. • The US is the most important export market for Mexican beer, generally accounting for over 80% of export sales. • Proximity to the U.S. market and access to freshwater are key drivers of Mexican breweries. • There is no evidence of economic nationalism-driven federal economc policies driving the location of Mexican breweries. • Droughts in northern Mexico resulting in public unrest over access to freshwater may impact the location of future brewery investments.