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EBR's Economic Forecasts

Arizona's Economic Indicators

  • Arizona & Metro Areas

  • Counties

  • Sources & Abbreviations

Costs and Contributions to Arizona's Economy
from "Border Effect"

By Vera Pavlakovich-Kochi


Assessing the “Border Effect"

Only a few things might be more complex than trying to assess costs and contributions to Arizona that are associated with its location along the international border with Mexico.  The mere complexity is one reason for the lack of a comprehensive study despite a voluminous literature on various aspects of the U.S.-Mexico border, and more specifically on the Arizona-Sonora region1. Most of the economic literature is focused on contributions of the border location for Arizona’s export activity; indeed, Mexico has been the number one foreign market for Arizona’s goods and services2. Also, the proximity to Mexico has provided an advantage to Arizona’s businesses to engage in a production sharing model known as the maquiladora industry, which utilizes lower labor costs in Mexico.  Arizona’s border location also has contributed to developing of Nogales, San Luis and Douglas into a major gateway for Mexican fresh produce shipped to U.S. and Canadian markets.  “Bridging the border” in terms of crossborder flow of goods and services is a well-documented, important, and firmly incorporated component of Arizona’s economic development strategy3.

border statesIncreasingly, attention has shifted to that other aspect of "bridging the border:" the flow of people.  Mexican migrant workers have historically been an important part of Arizona’s economy as miners, ranchers and agricultural workers.  Also, Mexican residents have traditionally crossed the border in large numbers for shopping in Arizona’s border communities4.  After the North American Free Trade Agreement (NAFTA) was signed between the U.S., Canada and Mexico, the northbound flow of Mexican migrant workers substantially increased. NAFTA provides no provisions for  crossborder flow of people; the trade agreement is strictly focused on flow of goods, money and services between member countries. According to the 2006-08 American Community Survey, Arizona was home to 617,526 immigrants from Mexico amounting to 9.7 percent of Arizona’s total population.  Mexican immigrants are the largest single group among the foreign-born population in Arizona, accounting for 65.3 percent.  Among Mexican immigrants, about 20 percent have been naturalized, while the majority of them -- a full 80 percent --are non-citizens (including unauthorized immigrants).

 

 

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Key pieces of a large puzzle

The purpose of this article is to summarize several existing pieces of information on various aspects of costs and contributions to Arizona that are associated with its proximity, and economic and demographic ties with Mexico. A so-called “meta analysis” has been applied that combines results from different studies, which even if they were produced by different methodologies and at different times, still help in creating a more comprehensive picture than each study does separately.  More importantly, by bringing costs and contributions on the same page, it is easier to get a more balanced view of a net result.

The estimates in this article are based on three recent studies.  The 2008 study Immigrants in Arizona: Fiscal and Economic Impacts5 provides the most comprehensive analysis of costs and contributions of all foreign-born population to Arizona’s economy. Using data from the U.S. Census 2000 and the 2006-08 American Community Survey, it was possible to estimate shares of fiscal costs and economic contributions associated with Mexican immigrants based on their shares of the naturalized and non-citizen immigrant population.  The 2007 study Undocumented Immigrants in U.S.–Mexico Border Counties: The Costs of Law Enforcement and Criminal Justice Services6 provides cost estimates specifically for Arizona’s border counties – Yuma, Pima, Santa Cruz and Cochise. We used these estimates and assumed that 99 percent of all undocumented immigrants in Arizona border counties are Mexican nationals. Estimates of cost per capita in Pima County were used to project similar costs for Maricopa County. The third study, Mexican Visitors to Arizona: Visitor Characteristics and Economic Impacts 2007-08 7,provides estimates of the contribution of Mexican residents who legally cross the border for shopping, business or work in Arizona. The original estimates from the two later studies, which provide estimates for 2006 and 2007-08, respectively, were deflated to 2004 for compatibility with the first study.

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Fiscal costs associated with immigrants from Mexico

Among the most frequently raised questions in debates about immigrants from Mexico are those associated with real or perceived costs of health care, law enforcement, and education for immigrant children.  Table 1 shows an estimated cost of $1.1 billion in 2004, and details the contribution of each category.

Table 1: Summary of Fiscal Costs to Arizona Associated with Mexican Immigrants (in 2004 dollars).


Cost Category

Cost Due To All Foreign-Born
($ millions)

Cost Due To MX Immigrants
($ millions)
MX Immigrants'Share of Costs (%)
Education (ELL)
544.1
415.4
76.3
Hospital Uncomensated Care Costs
149.3
110.0
73.7
AHCCCS Costs
642.0
443.2
69.0
Cost of Inmates
91.0
68.9
75.7
Cost of Undocumented Immigrants
87.4
86.5
99.0
Total Fiscal Costs
1,513.8
1,124.1
74.4

Sources:
Judith Gans, "Immigrants in Arizona: Fiscal and Economic Impacts," The University of Arizona Udall Center for Studies in Public Policy, 2008.

Tanis J. Salant, Undocumented Immigrants in U.S.-Mexico Border Counties: The Costs of  Law Enforcement and Criminal Justice Services. The University of Arizona School of  Public Administration and Policy, 2007. Report prepared for the United States/Mexico Border Counties Coalition.

U.S. Census 2000 Summary File 3 (SF 3): Place of Birth for Foreign-Born Population.

2006-2008 American Community Survey 3-Year Estimates: Place of Birth by Citizen Status; Place of Birth for Foreign-Born Population.

Health care

Health care costs consist of two major categories: hospital uncompensated costs, and costs incurred to Arizona’s public health care system through the Arizona Health Care Cost Containment System (AHCCCS).  According to Immigrants in Arizona: Fiscal and Economic Impacts, all immigrants in Arizona (i.e., all foreign-born population) accounted for $149.3 million in uncompensated hospital care costs, and another $642.0 million in AHCCCS costs, in 2004. Based on the share of Mexican immigrants in naturalized and non-citizen immigrant groups, we estimated that Mexican immigrants (including unauthorized immigrants) accounted for $110.0 million in hospital uncompensated costs, and an additional $443.2 million in AHCCCS costs. The dollar amount of costs attributable to Mexican immigrants represented 73.7 percent of the total health care costs associated with all immigrants in Arizona.8

Cost of immigrants’ children education

According to Immigrants in Arizona: Fiscal and Economic Impacts, English Language Learner (ELL) enrollment was used as a measure of the impacts of immigrants’ children in Arizona’s public schools. The total cost of all immigrants’ children in 2004 was estimated at $544.1 million. Based on the share of Mexican immigrants among non-citizen foreign-born population, we estimated that 76.3 percent or $415.4 million was associated with children of Mexican immigrants.  

Law enforcement costs

In 2004, according to Immigrants in Arizona: Fiscal and Economic Impacts, the total cost to Arizona of immigrant inmates was $91.0 million, of which $89.1 million was for non-citizens.  Based on the share of Mexican immigrants in naturalized and non-citizen population groups, we estimated that 75.7 percent or $68.9 million was associated with incarceration of immigrants from Mexico.

In addition to the above costs incurred through the Arizona Department of Corrections, there are also costs incurred by local police and sheriff’s departments in the course of providing for public safety. According to Undocumented Immigrants in U.S.–Mexico Border Counties: The Costs of Law Enforcement and Criminal Justice Services, Arizona’s four border counties incurred an estimated $26.6 million in costs for law enforcement and criminal justice services in association with undocumented immigrants, in 2006.  Using Pima County average cost of $15.83 per capita, we estimated comparable costs of $61.1 million in Maricopa County and $4.7 million in Pinal County; thus, we estimated that the total costs associated with undocumented immigrants in Arizona were $93.3 million. Assuming that Mexican nationals accounted for 99 percent of all undocumented immigrants, we estimated that their share of cost amounted to $92.3 million in 2006. After an adjustment for inflation, these costs amounted to $86.5 million in 2004 dollars, as shown in Table 1.

Thus, the total estimated costs of law enforcement (including criminal justice services) associated with immigrants from Mexico were $155.4 million.9

Summary of fiscal costs

Combined, the measurable fiscal costs associated with Mexican immigrants in Arizona -- comprised of immigrants’ children education, hospital uncompensated care costs, AHCCCS costs, costs of inmates, and cost of undocumented immigrants -- added up to a total of $1.1 billion in 2004. 

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Economic contributions associated with immigrants from Mexico

As part of the overall immigrant population in Arizona, Mexican immigrants contribute to Arizona’s economy in two basic ways: as workers and consumers.

Mexican immigrants in Arizona’s workforce: Contribution to economic output

With a 14 percent share of the workforce, immigrants play an important role in Arizona’s economy. According to Immigrants in Arizona: Fiscal and Economic Impacts all immigrants generated an output of $43.8 billion in 2004. Based on their share of naturalized and non-naturalized immigrant population, we estimated that immigrant workforce from Mexico generated $29.2 billion in total output to Arizona’s economy.10 This accounted for 66.7 percent of the total output generated by all immigrant workforce in Arizona, in 2004.

Buying power of Mexican households in Arizona: Contribution as consumers

The concept of buying power refers to after-tax disposable income available to households for spending on goods and services.  In Immigrants in Arizona: Fiscal and Economic Impacts immigrant households’ income was also adjusted to account for savings and remittances sent back to home country.  The study estimated that as a result of immigrants’ consumption, a direct output in goods and services (i.e., sales) generated in Arizona’s economy was $10.2 billion in 2004. Based on Mexican immigrants’ shares of naturalized and non-citizen immigrants, we estimated that $6.1 billion or 59.8 percent was contributed by Mexican immigrants.

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Economic impact of Mexican visitors’ spending

In 2007-08, Mexican residents made more than 24 million visits to Arizona for reasons of shopping, visiting friends and relatives, business, recreation, and work. According to Mexican Visitors to Arizona: Visitor Characteristics and Economic Impacts, Mexican visitorsspent directly an estimated $2.7 billion in Arizona’s department stores, grocery stores, restaurants, gas stations, hotels, and casinos during 2007-08.  In 2004 dollars, this translates to $2.4 billion.

Summary of economic contributions

Table 2 summarizes contributions to Arizona’s economy that are linked to the “border effect.” To avoid double counting, we subtracted immigrants’ spending from the total output as workers, since labor income is, by definition, a part of the total output.11 With this adjustment, Mexican immigrants in Arizona contributed an estimated $29.2 billion in economic activity as workers and consumers. This represented 66.7 percent of the total contribution by all immigrants in Arizona. Adding the impact of spending by Mexican visitors, the total economic contributions associated with the “border effect” was $31.1 billion, in 2004.

Table 2: Summary of Economic Contributions to Arizona from "Border Effect" (in 2004 dollars).

Economic Activity
Contribution of All Foreign-Born
( $ millions)
Contribution of MX Immigrants
( $ millions)
MX Immigrants' Share (%) Mexican Visitors
( $ millions)
Immigrants' Consumption
10,247.0
6,132.3
59.8
Mexican Visitors' Spending
2,404.2
Immigrants' Output as Workforce*
33,522.0
23,066.2
68.8
Total Economic Contribution
43,769.0
29,198.5
66.7
2,404.2

*Excluding consumption

Sources:
Judith Gans, Immigrants in Arizona: Fiscal and Economic Impacts, The University of Arizona Udall Center for Studies in Public Policy, 2008.

Vera Pavlakovich-Kochi and Alberta H. Charney, Mexican Visitors to Arizona: Visitor Characteristics  and Economic Impacts, 2007-08. The University of Arizona Eller College of Management, 2008, prepared for the Arizona Office of Tourism.

U.S. Census 2000 Summary File 3 (SF 3): Place of Birth for Foreign-Born Population.

2006-2008 American Community Survey 3-Year Estimates: Place of Birth by Citizen Status; Place of Birth for Foreign-Born Population.

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The balance sheet

Table 3 summarizes fiscal costs and economic contributions associated with Mexican immigrants in Arizona, including the contribution of Mexican visitors. All data are in 2004 dollars. The table also shows average costs and contributions per capita.

Table 3: Summary of Costs and Contributions to Arizona’s Economy from "Border Effect." All figures in dollars (millions, except per capita).

Summary of Costs
Costs
Costs ($ millions)
Per Capita $
Education (ELL) 
415.4
65
Hospital Uncompensated Care Costs 
110.0
17
AHCCCS Costs
443.2
70
Cost of Inmates 
68.9
11
Cost of Undocumented Immigrants 
86.5
14
SUM OF COSTS
1,124.1
177
Summary of Contributions
Contributions
Contributions ($millions) Per Capita $
Mexican Immigrants as Consumers* 
6,132.3
967
Mexican Visitors' Spending in Arizona**
2,404.2
379
Mexican immigrants as workers** 
23,066.2
3,636
SUM OF CONTRIBUTIONS
31,602.7
4,982

*Includes $266.4 million in direct tax revenues to state and local governments.
**Includes $167.4 million in direct tax revenues to state and local governments.
*** Includes $ 1.3 billion in direct tax revenues to state and local governments.

Sources:
Judith Gans, "Immigrants in Arizona: Fiscal and Economic Impacts," The University of Arizona Udall Center for Studies in Public Policy, 2008.

Tanis J. Salant, Undocumented Immigrants in U.S.-Mexico Border Counties: The Costs of  Law Enforcement and Criminal Justice Services. The University of Arizona School of Public Administration and Policy, 2007. Report prepared for the United States/Mexico Border Counties Coalition.

Vera Pavlakovich-Kochi and Alberta H. Charney, Mexican Visitors to Arizona: Visitor Characteristics  and Economic Impacts, 2007-08. The University of Arizona Eller College of Management, 2008, prepared for the Arizona Office of Tourism.

2006-2008 American Community Survey 3-Year Estimates: Place of Birth by Citizen Status; Place of Birth for Foreign-Born Population.


The total measurable costs of Mexican immigrants in Arizona are estimated at $1.1 billion or $177 per capita in 2004. These include $65 per capita for education of immigrant children, $17 per capita for hospital uncompensated care costs, $70 per capita for AHCCCS costs, $11 per capita for incarceration, and an additional $14 per capita for law enforcement and criminal justice services.

In the same year, as consumers, Mexican immigrants in Arizona accounted for $6.1 billion of output in goods and services, which comes to an average contribution of $967 in output per capita.

The major contribution of Mexican immigrants comes through their participation in Arizona’s workforce. As workers, Mexican immigrants accounted for an estimated $23.1 billion in output of goods and services (less income spent as consumers), or $3,636 in output per capita.

Adding the impact of spending by Mexican visitors, the total economic contribution increases to $31.6 billion or $4,982 per capita (in 2004 dollars). As shown in Table 3, economic contributions outweigh the fiscal costs to Arizona’s tax payers by multiple times.

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Geographic distribution of fiscal costs and economic contributions

Over the last few decades, Maricopa and Pima counties have been the primary destinations for immigrants from Mexico.  According to the American Community Survey, 82 percent of all Mexican immigrants lived in Maricopa and Pima counties. Border counties of Yuma, Santa Cruz and Cochise accounted together for 11.5 percent, and the fast growing Pinal County, located between Maricopa and Pima, accounted for 3.5 percent.  The remaining 3.5 percent of Mexican immigrants lived elsewhere in Arizona outside the two largest metropolitan areas of Phoenix and Tucson (Maricopa and Pima County) and counties adjacent to the border (Table 4).

Table 4: Immigrants from Mexico in Arizona, by County, 2006-08.

 

Born in Mexico
(All)

Born in Mexico
(Naturalized)

Born in Mexico
(Non-citizens)
Born in Mexico
(All %)
Born in Mexico
(Naturalized %)
Born in Mexico
(Non-citizens %)
Maricopa
422,795
67,724
355,071
68.5
55.7
71.6
Pima
81,010
21,587
59,423
13.1
17.7
12.0
Yuma
41,729
6.8
Pinal
21,617
4,858
16,759
3.5
4.0
3.4
Santa Cruz
16,839
2.7
Cochise
12,182
2.0
Rest of Arizona
21,353
27,504
64,600
3.5
22.6
13.0
Arizona Total
617,526
121,673
495,853
100.0
100.0
100.0

*Includes Yuma, Cochise and Santa Cruz except in the first column.

Sources:
For Maricopa, Pima, and Pinal counties, and Arizona total: Data Set: 2006-2008 American Community Survey 3-Year Estimates.Figures for other AZ counties were estimated by author based on % shares in 2000, based on:U.S. Census 2000 Summary File 3 (SF 3) - Sample Data, Place of birth for foreign-born population.

"Rest of Arizona" for naturalized and non-citizens includes Yuma, Santa Cruz and Cochise counties.

Therefore, it is not surprising that both the fiscal costs and economic contributions associated with Mexican immigrants are disproportionately distributed across Arizona counties.  Table 5 provides estimates of fiscal costs and economic contributions for Maricopa and Pima counties for which 2006-08 American Community Survey provides breakdown of immigrants from Mexico by citizenship (naturalized immigrants and non-citizen immigrants).  Estimates by county are obtained as a sum of costs/contributions of naturalized and non-citizen immigrants. The “rest of Arizona” is estimated as the difference between the estimated totals for Arizona minus combined estimates for Maricopa and Pima counties. For data on Mexican visitors’ spending, we used original estimates from Mexican Visitors to Arizona: Visitor Characteristics and Economic Impacts 2007-08 for Arizona’s total, Maricopa and Pima counties; the original estimates for Yuma, Santa Cruz and Cochise are incorporated in the “Rest of Arizona.” 

Table 5: “Border Effect:” Fiscal Costs and Economic Contributions to Arizona’s Economy, by County, 2004. (Except for per capita estimates, all dollar figures are in millions).

Costs:
Arizona 
($ millions)
Maricopa
($ millions)
Pima
($ millions)
Rest of Arizona
( $ millions)
Education (ELL)
415.4
297.4
49.8
68.2
Hospital Uncompensated Care Costs 
110.0
77.7
13.6
18.7
AHCCCS Costs 
443.2
304.8
57.7
80.8
Cost of Inmates 
68.9
49.2
8.3
11.4
Cost of Undocumented Immigrants
86.5
58.7
14.0
13.8
SUM of Costs ($ millions)
1,124.1
787.9
143.3
192.8
Share of AZ Total Costs (%)
100.0
70.1
12.8
17.2
Cost Per Capita ($)
177
204
144
130
Contributions:*
Arizona 
($ millions)
Maricopa
($ millions)
Pima
($ millions)
Rest of Arizona
( $ millions)
 Mexican Immigrants as Consumers  
6,132.3
3,938.0
898.5
1,295.8
% Share of Immigrants' Consumption
100.0
64.2
14.7
21.1
Mexican Visitors' Spending in Arizona
2,404.2
620.7
873.1
910.4
% Share of Visitors' Spending
100.0
25.8
36.3
37.9
SUM OF CONSUMER SPENDING
8,536.6
4,558.7
1,771.7
2,206.1
% Share of Total Consumption
100.0
53.4
20.8
25.8
Mexican Immigrants as Workers 
23,066.2
15,840.3
3,008.7
4,217.2
% Share of AZ's MX Worker's Output
100.0
68.7
13.0
18.3
SUM OF BENEFITS ($)
31,602.7
20,399.1
4,780.3
6,423.3
% Share of AZ's Total Benefits
100.0
64.5
15.1
20.3
Contributions Per Capita ($)
4,982
5,282
4,808
4,318
Ratio of Contributions/Costs 
28
26
33
33

*All contributions include tax revenues to state and local governments.

Sources:
Judith Gans, Immigrants in Arizona: Fiscal and Economic Impacts, The University of Arizona Udall Center for Studies in Public Policy, 2008.

Tanis J. Salant, Undocumented Immigrants in U.S.-Mexico Border Counties: The Costs of  Law Enforcement and Criminal Justice Services. The University of Arizona School of Public Administration and Policy, 2007. Report prepared for the United States/Mexico Border Counties Coalition.

Vera Pavlakovich-Kochi and Alberta H. Charney, Mexican Visitors to Arizona: Visitor Characteristics  and Economic Impacts, 2007-08. The University of Arizona Eller College of Management, 2008, prepared for the Arizona Office of Tourism.

U.S. Census 2000 Summary File 3 (SF 3): Place of Birth for Foreign-Born Population.

2006-2008 American Community Survey 3-Year Estimates: Place of Birth by Citizen Status; Place of Birth for Foreign-Born Population.

Maricopa County has attracted the largest number of Mexican immigrants (68.6 percent of Arizona’s total), and the largest number of non-citizen Mexican immigrants (71.6 percent of non-citizen Mexican immigrants in Arizona).  The County bears the highest cost per capita of $204 compared to Arizona’s average of $177 per capita, but it also reaps largest contributions per capita of $5,282.

Although closer to the border but with a smaller economy than Maricopa’s, Pima County attracted 13.1 percent of Arizona’s Mexican immigrants. Pima County has a relatively larger share on naturalized Mexican immigrants (17.7 percent of Arizona’s total) than non-citizen immigrants (12.0 percent of Arizona’s total).  With $144 per capita Pima County has lower costs than Arizona’s average, but the contributions of $4,808 per capita are also lower than Arizona’s average of $4,982.

Average costs of $130 per capita for the rest of Arizona (mainly the three border counties – Yuma, Santa Cruz and Cochise) are lower than Arizona’s average; so are the contributions of $4,318 per capita in comparison with Arizona’s average.

In order to better assess whether a county bears relatively larger costs or reaps larger contributions in comparison with other counties in Arizona, a ratio of contributions over costs has been calculated (bottom row in Table 5). These ratios suggest that Maricopa County bears relatively larger share of fiscal costs compared to total contribution to its economy.

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Conclusions

While there is a host of other “costs” and “contributions” to Arizona’s economy emanating from its border location, this article has focused on those that are reasonably measurable. From an economic perspective, the results of this analysis clearly demonstrate positive economic contributions to Arizona from its crossborder ties with the neighboring Mexico.flags

 

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References

1. See for example Vera Pavlakovich-Kochi and Jaewon Lim, Arizona-Sonora Region: Economic Indicators and Regional Initiatives. University of Arizona Eller College of Management and Economic Development, 2009. Prepared for the Arizona-Mexico Commission. Population estimates for Arizona, its counties and other U.S. States are by the U.S. Census Bureau.

2. Check EBR’s web site for articles on Arizona’s trade with Mexico.

3. See for example the Strategic Economic Development Vision for the Arizona-Sonora Region championed by the Arizona-Mexico Commission and Comisión Sonora-Arizona.

4. Since 1978, The University of Arizona's Economic and Business Research Center has conducted four studies of impacts on Arizona’s economy.

5. Judith Gans, Immigrants in Arizona: Fiscal and Economic Impacts. The University of Arizona, Udall Center for Studies in Public Policy: 2008. 

6. Tanis J. Salant (Principal Investigator), Undocumented Immigrants in U.S. –Mexico Border Counties – The Costs of Law Enforcement and Criminal Justice Service. The University of Arizona School of Public Administration and Policy, 2007. Report prepared for the United States-Mexico Border Counties Coalition.

7. Vera Pavlakovich-Kochi and Alberta H. Charney. Mexican Visitors to Arizona: Visitor Characteristics and Economic Impacts. The University of Arizona, Eller College of Management, 2008. Report prepared for the Arizona Office of Tourism.

8. Estimates of costs associated with Mexican immigrants were calculated by the author based on the share of Mexican immigrants in (a) naturalized immigrants and (b) non-citizen immigrants (including both legal and unauthorized immigrants). Based on 2000 U.S. Census of Population, Mexican immigrants accounted for 47.9 percent of all foreign-born naturalized citizens and 76.3 percent of non-citizen foreign-born.

9. Reimbursement by federal government is not included in these estimates.

10. This figure includes labor income and tax revenues to state and local governments. The portion of labor income that was spent by Mexican immigrants as consumers is excluded from the output generated by Mexican immigrants as workers to avoid double counting in Table 2.

11. According to IMPLAN input-output model used in Immigrants in Arizona: Fiscal and Economic Impacts.

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For additional information, please contact the Economic and Business Research Center.