Anil Kumar

English

Research Papers in Economics

FEDERAL RESERVE BANK OF DALLAS • SEPTEMBER/OCTOBER 2007    11    SouthwestEconomy
Globalizing Texas:
Exports and High-Tech Jo bs 
By Anil Kumar
Texas has won plaudits for globaliza-
tion. The Kauffman Foundation’s 2007 State 
New Economy Index ranked Texas the third 
most-globalized state. The Regional Glo-
balization Index, constructed by Moody’s 
Economy.com, puts Dallas among the coun-
try’s top 10 most globalized cities; Austin 
and Beaumont make the top 25. 
A key factor in these high marks for 
globalization has been expanding trade, 
which has made Texas the top exporting 
state. Compared with the nation, Texas ex-
ports a larger share of its output, depends 
on exports for more of its jobs, sends more 
sophisticated products overseas and em-
ploys higher-skilled workers in export- 
related jobs. The state has been instrumen-
tal in the surge of overall U.S. trade; its port 
activity has grown more than twice as fast 
as the nation’s in the past decade.1 
Texas, however, hasn’t diversified its 
export markets, continuing to depend heav-
ily on Mexico. It also hasn’t done as much 
as the nation in penetrating some of the 
large, emerging markets that will grow rap-
idly in coming decades.
Globalization has been spreading and 
deepening in the past decade or two. Econ-
omists are still trying to understand how the 
cross-border movement of goods, services, 
people and money is affecting national 
economies. 
Globalization’s state-level impacts are 
even more uncertain because important 
data are either incomplete or unavailable. 
We track regional exports of goods but not 
services. We don’t have any reliable data on 
imports. State-level export data have limi-
tations as well, but they provide valuable 
information on how Texas and other states 
are faring in a more open world economy.2 
Economic Boost
Texas was a standout in goods exports 
even before it surpassed California in 2002 
as the top exporting state. Over the past 
decade, the state has maintained a signifi-
cant lead over the nation in foreign sales as 
a share of total output (Chart 1). In 2006, 
exports accounted for 14 percent of Texas’ 
economic activity, compared with 8 percent 
for the United States. 
As economies globalize, workers’ liveli-
hoods are more likely to be tied to foreign 
markets. According to Census Bureau and 
International Trade Administration data, 
export-related jobs account for 5.5 percent 
of all private-sector employment in Texas, 
compared with the nation’s 4.5 percent. 
Twenty percent of the state’s manufacturing 
jobs depend on exports, versus 17 percent 
for the U.S. 
Total exports and the jobs they create 
are key aspects of Texas’ globalization, but 
we can also look at the mix of export prod-
ucts and markets. Export diversification is 
measured using the Herfindahl index, which 
equals the sum across industries or countries 
of the square of export shares. A larger value 
indicates that fewer industries or countries 
dominate total exports. A lower value signifies 
less concentration and more diversification.
Across both export products and mar-
kets, these diversification indexes show that 
Texas’ overseas sales are more concentrated 
than the nation’s. This isn’t surprising because 
the U.S. index is simply a weighted average of 
the states, which have different comparative 
advantages in terms of what they export and 
the markets they find favorable. 
Comparing Texas with California, the 
No. 2 exporter, we see that the two states 
have come together in recent years in the 
industrial diversification of their exports 
(Chart 2A). Nearly all the movement, how-
ever, has come from California, suggesting 
that Texas hasn’t made much progress in 
changing its export mix.
Texas continues to lag California and 
the nation in diversification across countries 
(Chart 2B). Texas’ top three foreign markets 
account for more than half its exports, com-
Chart 1
Texas Exports a Larger Percentage of Its Manufactured Output Than the U.S.
Exports/GDP	(percent)
0
2
4
6
8
10
12
14
16
’06 ’05 ’04 ’03 ’02 ’01 ’00 ’99 ’98 ’97
Texas U.S.
NOTE:	GDP	in	U.S.	ratio	is	based	on	North	American	Industrial	Classification	System.	The	exports	consist	of	manufactured	products.
SOURCES:	WISER	Exports;	Bureau	of	Economic	Analysis;	Haver	Analytics.
F I R S T   O F   T W O   P A R T SSouthwestEconomy       12      FEDERAL RESERVE BANK OF DALLAS • SEPTEMBER/OCTOBER 2007        
pared with 40 percent for the U.S. and 37 
percent for California.
Mexico is a big part of the story. In 
recent years, Texas has become somewhat 
more diverse, with fast export growth 
to Latin America, Asia and the European 
Union.3 Even so, Texas still depends heavily 
on its southern neighbor as an export mar-
ket. Although Mexico is the top export des-
tination for both Texas and California, Texas 
relies on the Mexican market for 36 percent 
of overseas sales, substantially higher than 
California’s 15 percent. 
The principle of comparative advan-
tage encourages greater specialization, but 
a diversified export portfolio can help sus-
tain economic growth by lending stability to 
states’ overseas sales. The greater a state’s 
range of products and markets, the more 
likely it will be able to withstand shocks to 
particular industries or countries. 
Several times in the 1980s and early 
1990s, Mexico’s economic turmoil spilled over 
into Texas, hitting the border region particu-
larly hard. Over the past decade, Mexico has 
achieved a long stretch of economic stability, 
which lessens concerns about Texas’ reliance 
on a single market for its exports.
Rising exports are a positive for Texas 
and other states. Expanding trade’s gains, 
however, may entail side effects—for exam-
ple, globalization’s impacts on certain seg-
ments of the economy, such as low-skilled 
workers. These are largely import-related, 
and state-level data aren’t reliable enough 
to measure the overall economic effects on 
Texas’ industries, jobs and income.
Sophisticated Products
As a high-wage country, the United 
States can’t compete with the likes of China 
and India in markets that rely on cheap 
labor. America’s edge in global markets 
is more likely to be found in goods and 
services that embody a high degree of ad-
vanced technology and skilled labor.
In general, Texas gets high marks for the 
superior quality of its workforce. The state 
ranks eighth on the Milken Institute’s Technol-
ogy and Science Workforce Composite Index 
and 12th in concentration of high-tech work-
ers per 1,000 private-sector employees. 
Texas’ high-tech workers help put the 
state ahead of the nation in exporting tech-
nologically sophisticated goods. We mea-
sure the state’s edge in these skill-intensive 
products as the export-share weighted aver-
age of research and development (R&D) 
spending to net sales ratio across manufac-
turing industries (Chart 3). 
In both Texas and the U.S., relatively 
skill-intensive industries are more globalized 
and employ a larger concentration of export-
related workers. Of these, the computer and 
electronics sector is the most skill-intensive, 
with industrial R&D expenditures of 11 per-
cent of net sales. The sector also ranks No. 1 
in share of jobs tied to exports. 
Chart 3
Skill Intensity of Texas Exports Is Higher Than U.S.
Skill	intensity	of	exports	(percent)
’06 ’05 ’04 ’03 ’02 ’01 ’00 ’99 ’98 ’97
Texas
U.S.
4.6
4.8
5
5.2
5.4
5.6
5.8
6
NOTE:	Skill	intensity	of	exports	was	calculated	using	average	R&D/net	sales	ratio	from	1999	to	2003.	
SOURCES:	WISER	Exports;	National	Science	Foundation;	author’s	calculations.
Chart 2
Diversification of Texas Exports
(Higher score = less diversified)
A. Texas Exports Across Products Are Less 
Diversified Than U.S. 
Herfindahl	index
0
.05
.1
.15
.2
.25
California
Texas
U.S.
’06 ’05 ’04 ’03 ’02 ’01 ’00 ’99 ’98 ’97
B. Texas Exports Are Getting More Diversified 
Across Countries
Herfindahl	index
0
.05
.1
.15
.2
.25
California
Texas
U.S.
’06 ’05 ’04 ’03 ’02 ’01 ’00 ’99 ’98 ’97
NOTE:	Industrial	diversification	was	calculated	using	exports	data	on	
two-digit	HS	commodities	from	WISER.
SOURCES:	WISER	Exports;	author’s	calculations.
Texas’ high-tech workers 
help put the state ahead 
of the nation in exporting 
technologically 
sophisticated goods. FEDERAL RESERVE BANK OF DALLAS • SEPTEMBER/OCTOBER 2007    13    SouthwestEconomy
Chart 4
Industrial Distribution of Export-Related Jobs
Other
29%
Chemicals
10%
Fabricated metal
11% 
Transportation
11% 
Machinery
13%
Computers and
electronics
26%
Texas
Other
37%
Chemicals
8%
Fabricated metal
11% 
Transportation
16% 
Machinery
12%
Computers and
electronics
16%
United States
NOTE:	Export-related	jobs	data	used	are	for	2003.
SOURCES:	International	Trade	Administration;	Census	Bureau;	author’s	calculations.
Chart 5
Texas Exports to BRICs 
Grow Faster Than to Non-BRICs
Index:	1997	=	100
’06 ’05 ’04 ’03 ’02 ’01 ’00 ’99 ’98 ’97
Non-BRIC
BRIC
0
50
100
150
200
250
300
350
SOURCES:	WISER	Exports;	author’s	calculations.
As much as 48 percent of Texas’ 
computer and electronic equipment jobs 
depend directly or indirectly on exports, 
compared with 35 percent for the nation.4 
The high level of skill intensity in exports 
and export-related jobs reflects Texas’ 
prowess in computer and electronic equip-
ment manufacturing, which accounts for 26 
percent of all export-related jobs, compared 
with 16 percent for the nation (Chart 4). 
Texas and the U.S. have differences in ex-
port-related jobs in chemicals and transporta-
tion, but they aren’t decisive for skill intensity. 
The data show important links be-
tween globalization and the high-tech 
sector, which has emerged as one of the 
Texas economy’s mainstays. Recent research 
stresses the importance of exports’ skill 
content, including its positive effects on 
technological progress, productivity and 
economic growth.5 Selling more sophisti-
cated products on world markets also ac-
celerates the learning process that makes 
exporters more efficient than nonexporters. 
All this suggests that qualitative aspects of 
trade may be just as important as the quan-
titative ones.
Trade with BRICs 
In the 21st century, several large devel-
oping economies have emerged as major 
drivers of global economic growth. Brazil, 
Russia, India and China, collectively known 
as the BRICs, are likely to continue their 
rapid economic growth in coming decades, 
creating markets for goods and services 
from more advanced nations.
Today, the BRICs produce just 15 per-
cent of the combined output of the U.S., 
Japan, Germany, France, U.K. and Italy, 
collectively the G6. According to Goldman 
Sachs, however, the BRICs will reach half the 
G6’s GDP in 2025 and surpass the G6 in 40 
years.6 Increases in demand from the four 
countries are likely to exceed that of the G6 
as early as 2009 and are 
projected to be four times 
the G6 in 2050.
Texas’ exports to 
the four emerging giants 
have shown impres-
sive growth, more than 
doubling over the past 
decade (Chart 5). Since 
2001, when the BRIC 
growth rate eclipsed the 
non-BRIC rate, the dollar 
value of sales has risen 
by 320 percent to China, 
217 percent to India, 76 
percent to Russia and 42 
percent to Brazil.
Even with high 
growth rates, however, 
the share of Texas exports 
going to the BRICs hasn’t 
increased relative to the 
nation’s over the past 
decade. The state has tra-
ditionally done much bet-
ter than the U.S. in selling to a group of 21 
emerging economies (including the BRICs), 
a fact that largely reflects Mexico’s promi-
nence as a market for the state (Chart 6). 
Over the past decade, Texas has trailed 
the U.S. in the share of its total exports to 
the BRICs but is closing the gap. In 2006, 
the BRICs accounted for a relatively small 
8 percent of the state’s total exports. These 
nations purchase 9 percent of U.S. exports.
Texas’ exports relative to the U.S. are larger 
Chart 6
Relative to U.S., Texas Exports More  
to Emerging Economies, Less to BRICs
Share	of	Texas	exports	relative	to	U.S.	(percent)
’06 ’05 ’04 ’03 ’02 ’01 ’00 ’99 ’98 ’97
0
50
100
150
200
250
Emerging economies
BRICs
China
Brazil
India
Russia
NOTE:	The	21	emerging	economies	included	in	the	analysis	are	Argentina,	Brazil,	Chile,	China,	Colombia,	
Egypt,	India,	Indonesia,	Israel,	Korea,	Malaysia,	Mexico,	Pakistan,	Peru,	Philippines,	South	Africa,	Russia,	
Singapore,	Thailand,	Turkey	and	Venezuela.
SOURCES:	WISER	Exports;	author’s	calculations.
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to Russia and Brazil and smaller to India 
and China. The performance difference 
probably reflects other nations’ needs as 
well as what Texas firms supply at competi-
tive prices.
Gaining an Edge
We know a lot less about globalization 
at the state level, but what evidence we do 
have suggests Texas compares favorably 
with the nation on globalization yardsticks 
centered on exports. 
The state depends more than the na-
tion on overseas sales, as a percentage of 
both state GDP and employment. Texas 
scores higher on export sophistication, sug-
gesting the state maintains a competitive 
edge in the high-tech sector. Texas trade 
with emerging economies remains solid, 
although the state depends heavily on the 
Mexican market and lags the U.S. in tapping 
into the fast-growing BRICs. 
In upcoming years and decades, the 
forces of globalization aren’t likely to subside. 
States, just like nations, will face sometimes 
difficult challenges as economic integration 
increases competition. At the same time, glo-
balization will create new opportunities for 
states to boost exports, not only creating jobs 
but also raising incomes. 
Kumar is a senior economist in the Research 
Department of the Federal Reserve Bank of 
Dallas.
Notes
The author thanks Keith R. Phillips and Raghav Virmani for 
useful comments. 
1 For details about Texas port activity, see “Full Steam 
Ahead for Texas Ports,” by José Joaquín López and Keith R. 
Phillips, Federal Reserve Bank of Dallas Southwest Economy, 
November/December 2006, pp. 3–6.
2 The Census Bureau advises caution in interpreting its state-
level export statistics. The numbers track origin of movement, 
which may differ from exporters’ actual locations. Goods 
not manufactured but merely shipped from a particular state 
count as exports from that state.
3 “Texas Exports: Markets Grow Faster Beyond North America,” 
by Anil Kumar and Raghav Virmani, Federal Reserve Bank of 
Dallas Southwest Economy, March/April 2007, p 10.
4 The Census Bureau estimates export-related jobs as 
the total of (1) employment related to direct exports and 
(2) employment from activities supporting direct exports. 
The bureau uses the following methodology: Export data 
are from the Annual Survey of Manufactures (ASM) and 
U.S. International Trade in Goods and Services. These 
direct exports are multiplied by the employment/shipment 
ratio from the ASM to yield employment related to direct 
exports. The estimate of supporting employment is based 
on multipliers from input/output accounts provided by the 
Bureau of Economic Analysis. The multipliers are used to 
calculate supporting shipments to direct exports. Employment 
multipliers are then used to estimate employment related to 
supporting shipments.
5 For example, see “The Export Skill Content, Learning by 
Exporting and Economic Growth,” by Galina An and Murat F. 
Iyigun, Economics Letters, vol. 84, July 2004, pp. 29–34.
6 For details, see “Dreaming with BRICs: The Path to 2050,” 
Global Economics Paper No. 99, Goldman Sachs, October 
2003.
Globalizing Texas: Exports and High-Tech Jobs
(continued from page 13)

Globalizing Texas: exports and high-tech jobs

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