Citation
The economic impact of the American retiree in Jalisco, Mexico, on the Mexican economy

Material Information

Title:
The economic impact of the American retiree in Jalisco, Mexico, on the Mexican economy
Creator:
Ball, Donald Alton, 1923-
Place of Publication:
[Gainesville]
Publisher:
University of Florida
Publication Date:
Language:
English
Physical Description:
xi, 152 . : illus. ; 28cm.

Subjects

Subjects / Keywords:
Cities ( jstor )
Developed countries ( jstor )
Developing countries ( jstor )
Financial investments ( jstor )
Foreign exchange ( jstor )
Investment banking ( jstor )
Population estimates ( jstor )
Retirement ( jstor )
Tourism ( jstor )
Travel industry ( jstor )
Dissertations, Academic -- Economics -- UF
Economic conditions -- Mexico -- 1918- ( lcsh )
Economics thesis Ph. D
Retirement, Places of -- Mexico ( lcsh )
Tourism -- Mexico -- Jalisco ( lcsh )
Genre:
non-fiction ( marcgt )

Notes

Thesis:
Thesis - University of Florida.
Bibliography:
Bibliography: . 148-151.
General Note:
Manuscript copy.
General Note:
Vita.

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01632027 ( OCLC )

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ThE LCU.T: tiC IMPACT OF TiL iEHiEC!I,
RETI REE IN . JAI,. C, iLXJCO ON 'i IlI 1,EXICAN ECO',ONY



















By

DONALD ALTON BALL


A D1SSLRAT-ON PRLSENT']O) TO THE GR\DUAE COUtCr1, OF
TIE UNIVERSITY OF FLORIA IN PATIAL
FUL]TL' ",Ili ,?,"T OF Tt'I: RLQJURI,,i I',S FOR TWl. DEG Glrt OF
DOCTOR OF PHILOSOiY







tINIVESTTY Of FJ,OIDA 1971











































Copyright by

Do-nald Alton Ball

1971
















ACKNOWLEDGMENTS


The writer wishes to express his sincere appreciation to Dr. R. W. Bradbury, Dr. R. H. Blodgett, Dr. C. W. Fristoe, and Dr. A. A. Anderson fo r their comments and suggestions during the preparation of the manuscript.

Special recognition is due to Mr. Pedro Donde and Mr. Armando Basurto, economists with the Banco de Mexico, S. A.

In addition, the assistance of Mr. Gary Hannes of radio station IN and that of Mr. R. Thurston and Mr. R. Snodgrass of the newspaper, Colony Reporter of Guadalajara, must be cited. Without their help, the data would never have been obtained.

Finally, he wishes to express his gratitude to his wife,

Victoria, and his children, for the many sacrifices made and the encouragement provided throughout the course of his graduate study.












TABLE OF CONTENTS


Chapter Page

ACKNOWLEDGMENTS iii LIST OF TABLES v LIST OF FIGURES viii ABSTRACT ix I INTRODUCTION 1 II TOURISM IN THE THEORY OF ECONOMIC DEVELOPMENT 3 III JALISCO -- ECONOMIC AND DEMOGRAPHIC DATA 37 IV LEGAL AND FINANCIAL REQUIREMENTS FOR RETIREES 50 V RESEARCH PROCEDURE 61 VI ANALYSIS OF SURVEY RESULTS 72 VII APPLICATION OF SURVEY RESULTS TO THE
TOTAL POPULATION 110 VIII MEXICAN INVESTMENTS OF AMERICAN RETIREES 125 IX THE ECONOMIC IMPACT OF THE RETIREES'
PRIMARY EXPENDITURES 129 X CONCLUSIONS 136


APPENDICES 139
Appendix A 140 Appendix B 142 Appendix C 144 Appendix D 146

BIBLIOGRAPHY 148 BIOGRAPHICAL SKETCH 152















LiST OF T'ABLtS


Table Page

1 High and ].w 1Upertuires for Guadalajara
and Selectd Cities 39

2 Gross Product for State of Jalisco
1960, .967, 1969 41

3 Principal Crops for 1.969 42

4 Growth Indicators of the Educational System, 1965-1968 44

5 Jalisco: Principal Industrial Indicators, 1960, 1969 45

6 Calculation of Number of Retiree H1ouseholds
to Establish Sample Size 68

7 RecalculaLion of the Number of Retiree
Households to Establish Sample Size Using
Values Obtaincd in Survey 69

8 Individuals per Retiree Household fron Sample 73 9 Sex of Retiree Respondents 73

10 Age Distribution of Retiree Respondents 74 11 Number of Persons per Married Retiree Household 74 12 Years of School Completed by Retiree Respondents 75 13 Amount of Education of Retiree Respondents 76 14 Year in Whiich Retiree Respondents Retired
to Mexico 77 15 State from Wich Retiree Respondent Retired
to Mexico 78 16 Last Job Hfeld by Retiree Respondent Before
Retiring 79











LIST O1 TA!']]I S (c ontt i- J)


Tab le Page 17 Year PrLevio us ly RetLir d Respondents Arrived in Mexico 80 18 Reasons for Choosing Jal.isco by Retiree Resporent s 81 19 Yearly Income of Retiree Respondents 82 20 Distribution According to Income of Retiree Respondents Who Gave Cost of Living as a
Reason for Choosing Jalisco 83 21 Retirement Payoents Paid Out by American Consulate for the Month of Jtne, 1970 84, 22 Retiree Respondents' Sources of Income 85 23 Expenditures Com:non to a]l1 Retiree Respondents 88 24 Exponditures Not Cu Ton to al1 Retiree Respondents 88 25 Expenditures on Housing by Retiree Respondents 89 26 Mexican Expenditures of Retiree Respondents Renting Houses 89 27 l4exican Expendi tures of Reti i c Hiomco-.nors 90 28 Activities of American Retirees in Jalisco 91. 29 Frequency of Movie Attendance by Retiree Respondents 92 30 Church Affiliation of Rtiree Respondents 92 31 Frequency of Church Attendance by R, tirce Resposidnn s 93 32 Retirees' Medical D [a for 1969 95 33 Retiree Respoindents who had Visitors in 1.969 96











LIST OF TABLES continuedd)

Table Page 34 Data on Wh.rc Visitors of Retiree Respondents Stayed 97 35 Visitor - Days per Retiree Respondent 98 36 Average Length of Visit of Retiree Respondents' Visitors 99 37 What Retirees Miss Most from the United States 100 38 Articles Purchased in the United States by Retiree Respondents 102 39 What Retirees Like Most About Mexico 103 40 Comparison of Reasons for Choosing Jalisco with What Retirees Like About Jalisco After
Living There 105 41 What Retirees Dislike About Mexico 107 42 Reasons Given by Retiree Respondents for Not Becoming Inmigrado 108 43 Total Primary Expenditures in 1969 for Which American Retirees in Jalisco are Responsible 123 44 Multiplier Effect of Retiree Expenditures on Value Added 131 45 Multipliers for TouristsExpenditures on Value Added 132 46 Short Term Economic Impact of Retirees' Expenditures 135 47 Long Term Economic Impact of Retirees' Expenditures 135


vii
















LIST OF FIGURES


Page


Mexico


Jalisco and its five economic regions including the central region

Flow diagram of the long term multiplier effects of an increase of $1,000 in the
demand by tourists for goods and services


viii


Figure 1. Figure 2. Figure 3.







AbstracL o of CrncduaLcL CoUil ] oi J CI ihe y',ve t of F 1nijda in Pal Lia] 1'(11fi ]1 . t
of th 11 Rc quf] r i ; " thS L I , I of I)o C L or of PiiIos \ph TIi- I': O~I 1 ]N A2'T OF s7iL
!J'-J'1.1 i l 1K IN J ]L SCO,
l'IX]CO 61 ,Til !in X ICA 2,t C r p


By

Donald Alton Ball

June, 1971

Chairman: Dr. R. W. Bradbury
Major Department: Economics

A survey of the current literature on the economic development of lesser developed countries has revealed that the authors usually recommend either that these countries industrialize anid/or that they concentrate on improving the state of their agriculture. Little, if any, atten tion ha, been paid to the benefits to be obtained from exporting goods and services by means of the tourism and travel industry, or of an even lesser known allied irnustLrythat of providing for permanent foreign retires.

le object of this study is an attempt to measure tlh economic impact which the American retirees living in the state of Jalisco, Mexico, make on the economy of N'xico.

Because of the iwpossibility of obtaining a coilplee listing of all Ame)ican retirees in Jalisco from which to prepare an unrestricted random sa vple, it wa; necessary to resort to a directed type of area sanpliing. A toLal of 263 households were itotrviewod which reprcscnted 3.5' per cent of the total population. Information was obtained not only about expenditures, but also of various











socio-economic characteristics of this important group of people.

When the results of the survey were applied to the total population, it was estimated that the American retirees in Jaliso spend approximately $35 million annually on recurring expenditures. In addition, they probably spent another $11 million on non-recurring expenditures for a total of almost $46 million in 1969. However, the American retirees made a still larger contribution as they were primarily responsible for the fact that 47,700 foreign tourists visited Mexico who probably spent an additional $7 million

7 hundred in 1969.

It was found that the Mexican law requires retirees to have a guaranteed monthly income from sources outside of Mexico of at least $320 per couple. If a retiree couple does not receive this minimum per month, they may still qualify for entrance into Mexico by in

vesting in government-approved investments within the country. The income received from these investments must still equal the minimum required by law, however.

To measure the economic impact on the Mexican economy, short term (one year) multipliers of 3.18 and 2.98 and longer term multipliers (periods of more than two years) of 7.13 and 6.55 were applied to the retirees' and their visitors' expenditures, respectively. On this basis, the short term economic impact of the American retirees in Jalisco must have amounted to approximately $16 million, as a result of their expenditures in 1969, whereas the long term impact may be as much as $377 million.











It is hoped that this and other studies will assist in pointing out to the lesser developed countries that there is another alternative worthy of consideration when plans for economic development are being formulated.
















CitAP'J LP I

INIRODUCT ION


Al though a coisidirrablc body of wriLing concerning the economic impact of tourism on the economies of the lesser developed nations exists, as far as the wLite has been able to ascerLain, no studies have been made of the importance of foreign retirees to the economy of a nation. This may be due to the fact that retirement in a foreign country on a large scale is a phenoenon of recent origin. As far as is known, Mexico is the only nation to this date which has had an important influx of foreign retirees.

The business of providinig goods and services to these

people is closely linked to the tourism and travel industry in that it not only coapleiniots Loutrism since retirees are attracted to a country for many of the reasons that tourists are, but it also actively assists in the growth of tourism as will bc demonstrated later. For these reasons, it is felt thaL the sale of goods and services to foa-eig ret iree s may be considered a subdivision of the tourism and travel induIstry.

With thes considerations in mind, the fol].ov'ing hypeliesis is proposed:

The sale of goods and services to the foreign retirees in the State of Ja]isco makes an inportant and mcani n-fuI contribuLion to the

economv of Mexico.










Thi obj (ct of this s t tdy , therefo re, is to at tempt to measure the cconomLic inlplct of t hc Am rican rctirce in the State of Jalisco on the economy of Meico. 'his s t at e Was Si ngl ed out for st udy because here there is a great er concentration of foreign retirees than there is in any otlier state of Mexico. American retirees were chosen for study because the vast majority of retirees in Mexico are Americans, although there are a few retirees from England, Germany, Scandinavia, and Canada. Because of the proximity of Mexico to the United States, it is difficult to believe that citizens of these and other nations will come to constitute an important percentage of the total retiree population for Mexico. This is not to suggest, however, that other lesser developed nations who might successfully attract retirees in the future should expect the same composition froin a country source viewpoint, since obviously geographicel location and even former political ties should cause this composition to differ.

Hopefully, the study of the business of attending retirees will suggest still another diversification of exports ope n to the lesser developed countries in addition to tourisn which is itself still insufficiently understood and insufficiently exploited.















CHI[API'R ITI

TOURISfl IN THIlE THEORY OF ECONOMIC DEVELOPI:'IENT


Although underdeveloped nations always have existed, it was

only after World War 11 that emphasis was given to the study of the secular prospects and problems of underdeveloped countries and to the means for resolving these problems.

Various definitions of what an underdeveloped nation is have been offered, but the definition proposed by Professor Kuznets is preferred by the writer. Hte defines underdeveloped countries as those "that have been unable to utilize the opportunities afforded by modern material and social technology and have failed to supply minimum subistance and miaterial comfort to their popul ations I

Among the many reasons given to explain the recent upsurge in the emohasis on economic growth are the fol lowing:


1. One result of World War 31 was the liberation

of people from colonial rule. This created many noore poor nations whose people are demandiing equality of opportunity as well as

libirty--national independence alone is insufficient; they also want economic develop2
ment.



lSaMue I Kuzne ts , Ec onoi c Crow th and St rUctUre (Nw Yolk: W. W. Norton & C1 2.
2Gunnar Myrdal, Rich Lands and Poor lands (New York: Harper and Brothers, Q57).
-3-











2. The tremendous progress achieved in the field

of communications has permitted the people of

the underdeveloped nations to see and thus compare their levels of living with those of the

more developed nations.


3. Improvements in data collection have permitted

their political leaders to make direct comparisons of such indicators as national income per

capita, consumption per capita, percentage

increase in capital formation and many others.3


4. The establishment after World War II of various

international organizations such as the United

Nations, International Monetary Fund, World

Bank, and others has provided international forums

where the underdeveloped nations may voice their

demands.


5. The increasingly close international ties mentioned above suggest that "the lack of freedom from want in some countries with the attendant

political and social perturbations may well

mean lack of freedom from fear in others that are

economically more advanced."4 This means that



3For a discussion of the appropriations of the use of these
various indicators, see Jadish Bhagwati, The Economics of Underdeveloped Countries (New York: McGraw-Hill Book Company, 1966), pp. 12-22.
4Kuznets, p. 3.











the exti:ley l]'ow levels of living of many of

the uieli d ,;'el oped countiies is uiderstood by th more dL op,.1 countries to be a threat to their

Own sccuri 1y.


6. The developced count ries have come to feel that

the misery and poverty prevalent in many of the

underdeveloped naLions is unjust and morally wrong.

In fact, Gunnar Nyrdal writes that "the use of the concept 'the underdeveloped countries' implies the valoe of judgment that it is an accepted

goal of public policy that the countries so

designated should experience economic developnent. ,15


7. Probably the mosnt imporLtaat reason of all for

the recent interest in economic growth is the

presence of Russia representing a different

social organization, the authoritarian state,

which professes to be able to handle long term

economic problems much more efficiently than
6
the democratic developed countries can.


As the interest in underdeveloped countries gained momentum, an increasing nmnber of social scientists, including economists, began to study the valJotIs problems related to the economic



5Gunnar yrdal., Rich Landic and Pool-, op.cit., p8.
6 Kuznets, p. 3.











developmtwent of the 1ower incl-,M CoUPLies The pri Imriy p 1)roblem, of

course, is to allocate the scarce resources in such a way as to

obtain maxiutim econozi c gio. th--a tas, for which the economist is

admirably equipped.

Speaking of the allocaLion of resources, Professor Hagen

writes:

Allocation among sectors is usually thought of
as referring primarily to choice between agriculture
and manufacturing. But this issue cannot be separated from foreign trade policy, for a decision
of a country to become more self-sufficient
usually requires an increase in domestic manufacturing; and, on the other hand, if the volume of exports of the lowest income countries is to be expanded, the added exports must be agricultural or other primary products. At a later stage
of development, export expansion may be the export
of manufactured products. At an early stage, the choice between autar1chy and free trade is one between fostering the growth of mianufacturing and
concentration on primary production. At a later stage, the choice is between self-sufficiency and
special ization within manufic uring.7


A survey of the literature on the economic development of the

underdeveloped nations indicates that Professor Ilagen's view seems

to represent thie consensus of opinion of neiast contLemporary thcor-ists;

that is, the lDCs are told to industrialize and increase the pro8
ductivity of agriculture. The other possibility of expanding

their exports of"invisibles" through the tourism and travel industry remains unmentioned. That industrialization does not include

this industry is indicated by the definition of industrialization



7Evere t tE E. Th e1jrC Ec ioao ics_of Development (Homewood, Illinois: Pichard D. Irwin, Inc., 1968), p. 441.
81,1)Cs - Lesser Develop d Countries.











as staLd by tih Econoic CoeJwissioni fol Latin America. "1 Idus Lri alization is the proportion of the active male labor force engaged in manufacturing, construction, gas, and electricity" or, alternatively, as the "percentage of the total labor force working as salaried employees or wage earners il manufacturing alone.'"9 It is clear that the alternate or at least the additional possibility of developed services for export--the "invisibles" in a nation's international balance of payment--is not brought up for consideration.

Since the export of "invisibles" is all important factor in the economies of various countries such as Italy, Spain, the

Scandinavian countries, and Mexico, for example, it would seem appropriate that they be included explicitly in any theory of economic development. That they are not may be attributable to the fact that traditionally interest has been centered in the exporting of the "visibles" perhaps because the "invisibles" for centuries have constituted such a very small item in the vast majority of the nations' balance of payments. In fact, it is only since the turn of the century that the tertiary sector, services, has come to have any inportaince in any nation's output. Perhaps more important is the explanation given by Professor J. L. Knipe who states that "the very concept of the export of 'invisibles' 10
was not understood until recently." 1 While it is not within the


91eonjamin lliggins, Ecofiomic Devel opent (New York W.W. Nortori and Company, 1968), p. Z;66.
101)r. Knipe is Bank of Yorth Carolina Professor of Bankiig at
East Carolitna tuivers i ty in Gcreenvilie, North Carolina, and formerly











scope of this paper to ilve:, ig,('te this hypothesis , it would be interesting to spcul] ate on the possibi lity that maly nations have not given servi ces the import ance they merit because in the received tlheory which those in charge of economic developed nt have studied, no men tion is made of their possible contribution to development.

Of the various items which go to make up the "invisib]es" the tourism and travel industry not only is growing rapidly but more importantly, it already occupies an eminent position in the 11
list of exports of many nations in various stages of development nt. It should be noted that in this study only travel for pleasure is considered, and is treated as if it were an equivalent of a consumer good. Among the maniy factors contributing to its growth are the rapid increase in personal disposable incomes of the population of the developed world, improved communications, more leisure tine, and the pressure of the population in the majority of the developed nations.



was consultant during the Kennedy Administrat-ion to Mr. C. Maitin, Chairman of the Federal Reserve Board.
]]"International tourism has become an export industry which is particularly important to the economy of certain European countries; in 1967, tourist receipts in foreign currency accounted for over 6% of CNP in Ireland, almost 6% in Austria and Portugal, over 4% in Spain and almost 4% in Swi tzerland. It is also an industry which is expanding rapidly. For European me mber countries as a wihol e, tourist receipts in foreign currency increased by 179% betwecn 1958 and 1967.1" See Tourism in OECD Mimber Countries in 1968 and _the Earl Months of 1969 "Paris: The Organization for Economic Cooperation aid Developm ,it, 1969), p. 7. For another example, "Since 1960, the number of foreigners visiting Mexico has jumped from 769,000 to more thanL 1.6 million in 1967. Income from tourism for 1968 was more than 1 billion dollars. Tourisin now is











Iiji le therc can bc little doubt that the tourism and travel industry has Vecome of inte IasLing elinic importance to a number of nations, for Lhe purpose of econoic analysis, is there any benefit to be derived froi s-in linog this industry out for special considcera tion over the automotive or glass industries, for example? The writer feels there is good reason for special consideration of this industry in the theory of economic development of the LDCs and will attempt to illustrate the advantages in so doing.

As stated previously, consensus among most economists in both the developed and the LDCs is that the latter have only two choices-industrialize or continue to specialize in the production of primary
12
products. They further state that because of the income inelasticity of demand for primary products which is further accentuated by price inelasticity of demand and because of the invention of synthctic materials which displace primary products, there is really no alternative so that these countries must industrialize. However, industrialization requires the importation of capital equipment and to be able to purchase capital equipment, foreign exchange is uecessary. but the fore]iga exchange required is



exico's sim-le most important exueoot item accounting for more foreign exc>l aige than does cotton, coffee, or sugar." See John Chris. tman, "Naxico Pushes NMzssive Tourist Industry," Mexico/This onth, January, 1959.
12
See Rau Prebisch, "Cocitmercial Policy in the Underdeveloped Countries " American Economic Re71ew, Papers and Proceedings XLIX alay, 1959), pp. 251-273; and Hans W. Singer, "The Distribution of Gains Between Investing and Borrowing Countries," American Economic Revie w: Papers and Proccedin ,s, XL (May, 1950), pp. 473-485.










norma ily greater than tha t wh ich can be provided by the exportati on of primary products; tlrit is, a forei go exchange gap exists. To close this gap, many economiisk argue, the developed nations should extend import preferences to both the LDC's mufactured products and to their primary products. This the developed countries are reluctant to do since the manufacturing industries in which the LDCs do haw an opportunity to compete are commonly those which are labor intensive and are already considered by them to be depressed industries. As such, these industries have been protected by the developed

countries for many years as have the agricultural products with 13
which the LDCs' production competes.

To reduce their dependence on the traditional primary products for foreign exchange earnings and simultaneously to reduce the expenditure of scarce foreign exchange on consumer goods, the LDCs are told by many economists of both developed and underdeveloped countries that they must turn to manufacturing for diversification 14
of exports and import substitution. But great difficulties have been imposed by the developed countries in denying them the mass 15
markets they lack at home. Further, these new industries must be given both protection fro imports and preference for their output in the developed countries since these new industries will be unable



13
John A. Pincus, "International Policies for Economic Development," Resh pijng the World Economy,, ed. by John A. Pincus (Englewood Cliffs, New Jersey: Prentice-Hall, Inc., 1968), pp. 8-9.
14 Benjamin Higgins, p. 553. Also see Everett E. Hagen, p. 462.
5John Pincus, p. ]1.


-]0-






- II-


to coinpete inLerimationaIIy ior some time This is a vcrsion of the infant indus try algth]Wnt.

A further difficulty in t(e LDCs' battle for economic development arises frum the "deion s (ration effect" which leads the people in these nations to copy the consumption patterns of the developed 16
countries, thus reducing their will to save. This results in less savings being avail able for investment and, if such importation is permitted, increased spending on imported luxury items which is a further drain on the supply of foreign exchange.

At this point, it might be well to consider how, by explicitly

including the tourist and travel industry in their development plans, the LDCs might be assisted to escape from the "vicious circle" in which they find themselves when they concentrate on manufacturing and agriculture.

The lack of sufficient foreign exchange is recognized to be a bottleneck in the development plans of most LDCs.17 As demonstrated in footnote ]1, p. 8, the tourism and travel industry has contributed greatly to anieliorate this problem for various countries and its contribution is increasing in importnnce.18 As noted above, primary products are considered to possess income inelasticity of demand yet the demand faced by the tourism and travel industry is income elastic,



16james Duesenberry, IncomC _Saving and the Theory of Consumer Behavior (Cambridge: Harvard University Press, 1949), p. 27.
171[agen, p. 466.
18The average increase of tourist receipts for a]l LDCs was 18.8% for the period 1960-1966. From Banco de Mexico, S. A., "Los Efectos del Casto de los Turistas Residentes en el Exterior Sobre la Economia Mcxicalia " (UIpublished report, Mexico City, 1969), p.2.






-12-


i.e., the greater the i ncuoe , the greater the tendency to travel.. As disposable i cCie rises, there is a gi eat(r demand for these services. Experience has sh ovn that t ravel , once a person possesses a surplus over his noriial expenditures available to spend on the demand for services of the tourism and travel industry,is price inelastic over a substanti-ally larger price range than is the demand usually faced by manufactured products. With few exceptions, the final product of the tourism and travel industry is purchased by non-professional buyers who are probably more strongly motivated by other factors in addition to price than are the professional buyers of imported primary 19
and manufactured goods. This and the fact that the products are extremely heterogeneous enable the sellers of these services to compete on other than a pure price basis--concrete]y for the underdeveloped countries, this means that there is an excellent opportunity for these countries to compete for trade even though there May be considerable differences in prices. For these reasons, the income elasticity of demand which works to the disadvantage of the LDCs as far as primary and manufactured products are concerned (being inelastic) is an important factor in the growth of the tourism and trade industry while, the price inelasticity of deinauld for primary products does not appear to carry over to this industry.

Although the infant industries producing manufactured goods often do have great difficulties in penetrating the markets of



19Guadalajara, Mexico, interviews with various travel agents and airline executives, August, 1970.






-13-


deve Ioped countries bec7u :e of produc t i nfrioli ty and high cos Ls, these difficul tics a r lIy not faced by p roducers in the toi Sm and travel indust ry. Not only is price less of a factor, bot the lack of "quality" as measured by the standards in the developed countries often serves as an attraction for purchasers of this industry's services as witnessed by the flow of tourists to resorts with rather prit Live accomodations, such as Puert.o Vallarta, Bali, 20
and other "recently discovered" tourist centers.

Further, the LDCs are not denied access to the mass tourism and travel market of the developed countries by protectionist devices as they are for primary and manufactured goods. Tariffs have not been applied to these services with one exception--several developed countries do place limitations on the value and sometimes quantity of the articles which the returning traveler may admit to the country duty-free. Theoretically, the possibility of discriminately taxing international air flights exists, but any attempts to do so would meet stiff opposition from the International Air Transport Association (I.A.T.A.) to which all international airlines but two belong. Since,in the vast majority of nations, these airlines are either entirely or at least partially governrent-ownk d, any at tempt at this type of discrimination would lead immediately to official government protests.



20"Paradise Lost? Bali Wonders," The News and Observer (Raleigh, North Carolina), December 27, 1970, p. 8.






-1;-


A Ith ouli Lariff arf c ';.o rally iiiapp Icable, the touri-sni and travel i Pdus try dnoe,,- I Id itself to subs idies vlhich a re cons idered to be economically suj rior to tariifs. For example, the majority of the international airlines are either subsidized oi , as in the case of many governm nt-owiled airlines, their operating deficits are absorbed by the national treasuries. Italy offers lower priced gasoline to tourists whereas France does not require merchants to charge the sales tax on articles purchased by foreign tourists. More favorable exchange rates are given to international tourists who visit a number of the Communist countries.

Restrictive controls are applied to the importation of this

industry's services as they are to the imports of primary and manufactured goods. Nations with a lack of foreign exchange limit the amount which may be purchased by their nationals for purposes of travel. and a special overvalued exchange rate is frequently charged them. To persuade its nationals to use the national airlines, India permits a national to purchase 100 U. S. dollars if passage has been booked on an Indian airline, but only 10 U. S. dollars if he is using a foreign line. In addition, governments of many countries require various documents before permission to leave the country is given. Obtention of these docUmonts is very frequently time-consuming because very few government facilities are provided.

hile the unlerdeveloped countries are very adamant in their

demands for preferences for their exports of primary and manufactured goods, they appear to have overlooked the advantages which might be obtained if they were to receive preferential treatment for their






-15-


expo Is of g oods and serces of the tourism and travel indIstry. Example of such prefcroni-in! treatment :ight be


I. Developed count ries with exchange controls

could make rmore exchange available to travelers going to the LDCs. This practice is being followed in Chile, where more foreign exchange

is sold to travelers going to other Latin

American countries than is sold to those

visiting the United States or other developed

countries.


2. Developed countries could permit a greater

quantity of souvenirs purchased in the IT)Cs to be admitted from the developed countries.


3. Developed countries could give tax rebates on

profits earned by their hotel operators, tourist

agencies, and other firms operating in the

tourism and travel industry of the LDCs. Tax

credit on investments made by these same firms in

the LDCs could be extended.


4. The develop d countries can provide personnel

to make feasiblity studies for tourist projects

in the LDCs.


5. Taxes on tourist bureaus operated by the LDCs

in the developed countries could be eliminated.






-16-


6. The developed countries could eliminate airport landing fees for airplanes flying to

the LDCs.


Are the LDCs' prospects of obtaining preferences for the exporting of the tourist and travel industry's services any better than they have been for obtaining preferences for their primary and manufactured products? We have seen the tremendous difficulties

in organizing international commodity agreements for the purpose of 21
stabilizing or increasing prices or incomes. It has been especially difficult to obtain an agreement in which the consumer countries participate. But, I.A.T.A, the international organization which does control very effectively not only prices of international transportation but also the amount of services offered aboard the airplanes, commission rates to travel agencies, entry into the travel agency industry, is a viable organization as well as a very effective monopoly in which all nations, both developed and underdeveloped, already participate. Thus, this could be the organization in which preferences for the LDCs might be agreed upon.

Another factor of equal importance is the fact that there are no protectionist barriers to be dismantled in the developed countries in regard to the tourist and travel industry as there are for many



21Harry G. Johnson, Economic Policies Toward Less Developed Countries (New York: Frederick A. Praeger, 1967), pp. 136-140.






- 17-


primary and D.11M ffat -d 1 I d ets Loc 0i pressure groups demanding protection for the nt Lional. ton eisw and travel iiidustry are certainly not as vociferous, if they do indeed exist, as are the groups representing depressed in t "ri e.

Still some relatively weak protectionism does exist as witnessed by the campaigns of various governments such as those of the United States and Nexico which exhort their nations to "see their countries first." Objections by labor organizations in the developed countries to investment in tourist facilities is nil probably because the growth of this indus try in LDCs does not imply any significant loss of jobs to workers in the developed countries.

Professor Harry Johnson writes of another reason why the LDCs might have more success in obtaining preferences when he states:


However, the opening of new trade opportunities for the less developed countries is still
dependent on bargaining on the basis of reciprocity
among developed countries--and therefore on the
willingness of more than one major country to reduce barriers that impede the exports of the
less developed countries.22


In the case of the tourist and travel industry, now opportunities for the export of its services are not subject to any appreciable trade barriers so that bargaining among the developed nations is not required. Likewise, there is no problem of obtaining equal preferences by developed countries as preferences for the exporting



22
Ibid., p. 132.






- IF; -


of the tourist and Lravel industry's services do not eist in aly

appr ciable amount.

Certainly theft is little in the pr-esent rules governing internations]l relations as enlbodied in CATT and the IMF charter which

would prevent the products of the toutrism and travel industry from

being treated in the sam,., mnner that other imports are presently

hand led. As shown previously, tariffs on foreign purchases made by

travelers may be applied and quantitative restructions are also permissible when a nation is faced with balance of payments difficulties.

The central argument for temporary preferences for the manufactured exports of the LDCs advanced at the United Nations Commission for Trade and Development (UNCTAD) was derived from infant

industry considerations. Professor Harry C. Johnson feels that the

argument as presented:


is a dubious scheme politically because it would provide maximum incentives for the establishment
in the less developed countries of the very developed-country industries that have in the past
shown most political power to obtain protection
from foreign, co,:npetition. . .. The tariffpreference sch-iie is economically dubious because
it provides maximum incentives for the establishment of the indus tries whose costs will have
to fall most below those in the preference-giving
countries if they are to survive the termination of the preferences. While the most heavily protected industries in the developed countries are
likely to incl ,ce those in which the less developed
countries have a potential comparative advantage, it is very unlikely that they generally represent
the best infant-industry prospects for the less
developed countries.23



23lbid., p. 132.






-19-


However, UNCTAD's argument when applied to the tourism and tourist industry is not as dubious. In fact, past experience has shown that the tourist and travel industry can grow in various underdeveloped countries with no preferences having been extended by the developed countries. Certainly it is not an industry which has had great protection in the developed countries from imports. As shown previously, the tourism and travel industry is not as subject to the amount of price competition as are the primary and manufactured goods industries so that to survive after the termination of preferences, this industry's costs would not necessarily have to fall below those in the preference-giving countries. The tourist and travel industry appears to be one to which not only UNCTAD's argument would apply but also to which the pure infant industry argument would apply as well. It would appear then, that this industry in the LDCs can be the recipient of preferences extended by the developed countries and is not subject to the disadvantages described by

Professor Johnson.

Much has been written to the effect that the demonstration effect is an obstacle to development.24 Since this effect is most prevalent in regions where the tourist and travel industry is of importance and thus might cause some planners of economic development



24Ragner Nurkse, "Some International Aspects of the Problem of Economic Development," in The Economics of Underdevelopment, ed. by A. N. Agarwala and S. P.Singh (London, Oxford, New York: Oxford University Press, 1963), p. 267. See also Celso Furtado, "Capital Formation and Economic Development," _:bid., p. 328, and M. Bronfenbrenner, "The Appeal of Confiscation in Economic Development," ibid., p. 484.






-20-


to look disfavorably on this industry as a means for economic growth, the advantages to be derived from the demonstration effect and the closely connected emulations effect should be brought out.

As a result of exposure to tourists and travelers, changes in 25
both production and consumption of goods and services may occur. Tourists and travelers may bring products with them which are seen by local residents. Knowledge of services and products heretofore unknown in the region may also come from demands by tourists and travelers for the services and products which they do not encounter locally, but are accustomed to having. Either one of these factors may lead to local production. There may already exist in the region a small demand for goods and services as a result of local residents having traveled to foreign countries, but their demand alone may have been tob small to justify local production. However, the influx of tourists may increase the demand to the point where local production will be economically feasible. As a result of this external economy from tourism, not only may local residents be able to consume an increased number of goods and services at reasonable prices, but also new investment opportunities may be created which will attract foreign and local capital. Emulation has also accounted for increased production. Auto rent agencies, motels, restaurants established by foreign owners have soon been imitated by local entrepreneurs. The net result is often increased employment opportunities for those who were previously unemployed.



25W. W. Goldsmith, The Impact of the Tourism and Travel Industry on a Developing Regional Economy: The Puerto Rican Case (Ithaca: Department of City and Regional Planning, Cornell University, Sept., 1968), p. 13.











In fac t , one of the gre s L at t ac tioPs of the tonriS t and

travel indus I ry for the cconocvic planners who are awa re of the contributious to ccoloiiic dcveo1 cpl nt vhlaich this industry can Ilake is that it requires a lesser amotient of highly trained people and a general labor force with a lower level of education than does ianufacturing. 26 This results in a lower social cost per worker employed in this industry than it does for those employed in manufacturing. Equally important is the fact that a lack of highly trained laborers in a LDC is not likely to keep prospective foreign tourist investment from coming in as it may do in the case of manufacturing and, further, many of the skills required are already known since,even in the most retarded nations, there are hotels, restaurants, taxis, barbers, and other services required by the tourism and travel industry. Even loans from international agencies may be easier to obtain for tourism and travel than for manufacturing as one of the considerations for a loan is whether the technical and management skills are available to handle the project once it is completed. Since, for tourism and travel, there are people already possessing these skills or there are workers available to whom the relatively easily learned skills can he taught rapidly, this is not likely to be a major deterrent to receiving a loan.

Not only is the tourism and travel industry a labor intensive industry, but, in addition, the major part of the capital equipment required is produced locally in many of the lesser developed countries.



26
Banco de M xico, S. A., p. 16.


--2 t-






-22-


In Mexico, which, admittedly, is one of the more highly developed of the LDCs, official estimates are that, of each 100 dollars spent by tourists, only 3.7 dollars of imported goods directly and indirectly
27
are required. Some substitution of more labor intensive methods for processes normally requiring more capital in the developed countries may be made in the LDCs without seriously affecting the service such as the use of hand labor for washing dishes, hand ironing, and simple office machines, for example. In many instances,

the tourist may not want the latest technical developments available in the developed countries when he is vacationing; that is, he will prefer to buy a tailor made suit or hand-made shoes, and will want to avail himself of personal services which have all but disappeared in the developed countries. It would appear that here we have an exception to Professor Higgin's statement:

Underdeveloped countries can not afford labor
intensive techniques in the sense of low capitallabor ratios, because they are too expensive in terms of capital--they have high capital-output
ratios. 28

The tourism and travel industry is a welcome exception to this statement.

It is recognized by most writers that private foreign investment

is a necessary but not sufficient condition for accelerating economic growth. Yet foreign investors have been reluctant to invest in many of the LDCs in other than the traditional primary industries because of the smallness of the domestic market and the difficulty



27Ibid., p. 3..
28Higgins, p. 315.






-23-


of access to the external markets for manufactured goods. Concomitantly,many of the LDCs which can produce primary products for export have erected barriers to investment in these areas on nationalistic grounds. The extractive industries have been particularly affected. Professor Johnson refers to their dislike of their traditional export industries in his Economic Policies Toward Less 29
Developed Countries. However, the tourist and travel industry has opened up new opportunities for investment in areas where there is no competition from the local traditional monopolies or oligopolies who have tried to block the entry of new progressive firms. The foreign investors themselves are numerous so there is little chance for the establishment of a foreign monopoly in an area so highly competitive internationally as is the tourism and travel industry.

It has been claimed that scare foreign exchange and savings are wasted when large, uneconomic industrial plants are erected at the request of the nations' leaders as visible signs of progress.30 Another writer calls it "conspicuous industrialization."31 Such visible signs of progress as new hotels and airports are required for the tourism and travel industry, however, so that they may constitute the monuments which the leaders desire and simultaneously

be economically useful.



29Johnson, p. 58.
30Ibid., p. 68.
31Hans J. Morgenthau, "Preface to a Political Theory of Foreign Aid," from Why Foreign Aid, ed. by R. A. Goldwin (Chicago: Rand McNally and Company, 1963), p. 76.






-24-


Whereas the extractive industries tend to promote the formation of foreign enclaves much to the annoyance of the local population, the tourism and travel industry is less apt to do so. Another source of irritation from the extractive industries is the fact that irreplaceable natural wealth is being removed from the country and it is realized that some day the supply will terminate leaving the country with ugly scars and piles of waste. By contrast, the tourism and travel industry most often will enhance the country's natural beauty and normally will either not deplete natural resources or will do so at a far slower rate.

This industry often appeals to even the most nationalistic of

people since it gives them the opportunity to display their nation to guests. Many LDCs are proud of their tradition to welcome visitors
a 3 2 . . . . . . . . ... .
hospitably3

Most discussions of industrialization for economic development point out the necessity to manufacture for export or for import substitution. The development of the tourism and travel industry will at once serve both ends. As facilities become available for foreign tourists (exports), they are likewise available to the local population which may use them instead of 'traveling to foreign countries for vacations (import substitution).

Various external economies accrue to the local population

such as improved medical, dental, and other services whose suppliers



32Jaime Avalos Medina, "Valiosa Fuente Sera en Breve el Eje
Guadalajara--Chapala--Vallarta," El Occidental (Guadalajara, Mexico), August 21, 1970, p. 1. "To our proverbial hospitality must be added an increasing efficienty. . . ." This was written after the meeting of Presidents Nixon and Diaz Ordaz in Puerto Vallarta, Mexico, in August, 1970.






--25-


attrac ted by the tourisLs tLI supply everyone in the region. To make the area more at-tr iacLive to visitors, strec ts siay be paved, parks built, and slums; cl eircd. Since those facilities may he used by the public in general, they may be rightly considered as external benefits derived froii, tourism. An editorial in the Guadal ajara newspaper, El. Occidental, claimed that more was accomplished in a few short months to improve and beautify Puerto Vallarta for the arrival of President Nixon than had ever been done in the entire history of the city.33

The entire population may benefit from lower prices for many products as firms in the tourism and travel industry, conscious of the necessity for being internationally competitive, exert pressure on local high cost suppliers protected by tariffs and quotas to lower their prices on items consumed by both tourists and local residents.

Land unsuitable for agriculture and containing no minerals may become economically useful as a resort area. A region too mountainous for agriculturc may be an excellent ski area once access roads and tourist accommoda tions are buil.t and the area is promoted as a tourist attraction as Chile has recently discovered.

The tourism end trade i ndus try may cause itprovements and

diversification in agriculture as wel.l as manufacturing when it is made known that there is a tourist market for certain food products



33Editorial, El Occidotel (Guadalajara, Mexico), August 21, 1970.






-26-


which are not presently available. The insistence by American tourists on more tender beef in Mexico caused a reaction which terminated with many producers fattening their cattle on corn before slaughtering. The Mexican government which controlled meat prices recognized that this class of beef was necessary for the tourist trade and that it cost more to produce. Meat retailers were permitted to charge higher prices and pay higher prices to the producers.

Not only the tourists but all of the public benefited as beef more tender than ever was available for general distribution and the cattle growers were receiving higher prices for each steer brought

to market.

Another problem for the farmer which the tourism and travel

industry may assist in solving is the lack of suitable transport for his produce. Professor B. W. Hodder writes:


It is probably always true to say that there
is no point in a farmer having a new crop variety
or fertilizers which will enable him to increase
his food production very substantially and immediately, if at the same time his form of transport
is so costly or the demand for the extra produce is so uncertain or u distant as to make such an
increase worthless.


It was only when tourism was becoming an important industry for Puerto Vallarta that the paved highway to connect Guadalajara, the capital of Jalisco and an international port of entry, with this 35
resort area was completed. Besides aiding in the movement of



34B. W. Hodder, Economic Development in the Tropics (London: Methuen and Co., Ltd., 1968), p. 202.
35The Guadalajara to Puerto Vallarta Highway was rushed to
completion just before the Nixon-Diaz Ordaz meeting as the Mexican






-27-


tourists from Guadalajara to Puerto Vallarta, this highway, which cuts through agricultural land, will greatly assist the farmer living in this area in bringing his produce to market. Traditionally, newer and more efficient rolling equipment has followed newly paved

highways in Mexico since both travel time and maintenance costs have been reduced. As a result of a road constructed primarily for tourism, the farmer is not only able to serve the Guadalajara market more economically, but will also have another rapidly growing market in Puerto Vallarta whose population, it is estimated, will grow to over 100,000 by about 1976 from the 3,000 inhabitants in 1950.36

It would seem that when the tourism and travel industry is explicitly considered, the need for roads leading to tourist areas is more readily apparent and often the payoff period is substantially shortened; thus, there is less of a problem in decision making concerning government planning than that indicated by Hodder when he writes about thechoice which must be made between projects likely to show a profit quickly and projects such as roads which can only be expected to bring long term and indirect results.37 In the case of the Guadalajara-Puerto Vallarta highway, results were readily measurable since the increased number of foreign registered cars



government correctly visualized that a far greater influx of tourists would occur if such a highway were available. Without doubt, national pride was an important factor as well.
36The News (Mexico City), August 21, 1970, p. 9.
37Hodder, p. 219.











was appa relnt and tiey vo.\ re short term1 si cC this increase occurred shortly after the road's coi p] etion.38

Tourism hins ofLen been responsible for introducing foreign

entrepreneurs to the poe-sibilities of conducting business in or with an underdeveloped country. Businessmen have established subsidiaries in countries after having personally seen the advantages of doing so while on vacation. Others have invested in businesses or in paper issued by investment banks as a result of being ablc to see the opportunities personally while in the country on a pleasure trip. Apparently, a considerable number of firms exporting native handicrafts owe much of their business to the fact that visitors saw the market possibilities of their products or persons in other countries 39
receive(] these articles as gifts from returning tourists.

This has been recognized by the Mexican government and a

Center of Mexican Handicraft is being built in Guadalajara for displaying these products. The project has attracted the attention of an association of 16 Latin American nations, Interamerican Center for the Prooti on of Exports, which has requestcd perm ission to place haidicrafts of its et i ber nations on dlisplay in the new center. Not only w.ill tnese products be on display, but there will be facilities on the premises to effect large scale sales. The Executive Director for the I. C. P. E. believes there is a market for the handicrafts which are in the main produced by the labor



38
Opinions expressed by various tourist agencies in Guadalajara in i ntervic vs held during Aogust, 1970.
39From personal interviews with firms producing glass and leather handicraft.s in ]]aqueo)aque, Mexico, August, 1970.


-28-







-29-


intensive cottage industries and that the tourism and travel industry 40
will contribute greatly to their promotion.

The contributions of the cottage industry are given by Hodder

who writes:


Cottage industry is the kind of venture which
depends on traditional skills and so can help to build up the supply of manufacturing, managerial, and entrepreneurial experience which in turn can form the basis of a subsequent, more impressive,
industrial expansion; it economizes with the scarce
factor of capital and makes a fuller use of manpower, being labor-intensive rather than capitalintensive; and it is aimed at producing the kinds
of consumer goods with which the domestic market
is already acquainted. . . . Japan has gone a long
way in converting family industries into decentralized light industries and her example may profitably be followed by the countries of the tropics.41


An outstanding example of a cottage industry product which has

become internationally famous, of course, is the Bleeding Madras fabric

for wearing apparel which India now exports to many parts of the

world.

It would seem,then, that the contributions to economic development which the tourism and travel industry can make to the economic

development of the lesser developed nations are of such importance

that this industry can no longer be neglected neither in theory nor

in the policy recommendations of specialists in this field.

If the tourism and travel industry were incorporated in economic

theory, it is doubtful that Professor Myrdal would write today as he

did in 1957:



40"Exportaciones: Factor de Crecimiento," Vision, November 20, 1970, pp. 59-62.
41Hodder, p. 176.






-30-


Trade operates with the same fundamental bias
in favor of the richer and more progressive regions
against the other regions. The freeing and widening of the markets will often confer such competitive advantages on the industry in the already established centers of expansion, which usually
work under conditions of increasing returns, that
even the handicrafts and industries existing earlier
in the other regions are thwarted.42


Tourists to Chile are directly responsible for introducing

Chilean hand carved furniture to the American market and sales have now increased to the point where large air shipments are being made directly to various cities in the United States.43

Can investment in real estate employed in the tourist and travel

industry be called unproductive,as does Nurkse:


It may help in some degree to account for the
common observation that such domestic saving as
does take place in underdeveloped countries tends to be used unproductively: hoarded, exported, or
put in real estate.44


Real estate investments made by Mexican businessmen in such

areas as Puerto Vallarta, Acapulco, and Matzatlan have been extremely productive and beneficial to this nation. It would seem that Nurkse's statement can not stand alone; it must be further qualified when the tourism and travel industry is considered.

Meier and Baldwin are representative of those writers who see the problem involved in transferring modern technology to the LDCs.



42Myrdal, _p. 24.
43Personal interviews with owner of furniture store and factory selling to the United States, Santiago, Chile, May, 1968.
44Nurkse, p. 259.






-31-


Since the bulk of technological research in the developed countries is dedicated to finding capital-using innovations, the factor of production most scarce in the underdeveloped countries, it would seem from these writings that these nations have little choice but to adopt the latest capital-using, labor-saving processes which contribute relatively little per dollar invested to providing production employment for the large masses of underemployed.45 If the

labor intensive tourist and travel industry were given the place it merits in these authors' discussions of routes to economic development, then it seems that the future for many of these nations would 46
not be so hopeless as it appears to be. Some, at least, of the "vicious circles" can be broken and done so more effectively by the

fostering of a tourist and travel industry. Manufacturing with its myriad of problems is not the ONLY solution as often depicted in present-day literature.

Consider Professor Ronis' comments on the significance of trade in the growing economy of the LDCs:


The primary emphasis in this dynamic setting
must be on the search for export substitutes,
reversing the historical tendency toward an increasingly narrow n tural resources-oriented
export base . ...



45Gerald M. Meier and Robert E. Baldwin, "Technical Assistance," in The United States and the Developing Economies, ed. by Gustavis Ranis (New York: W. W. Norton & Company, 1964), p. 120.
46According to the economists of the Banco de Comercio Exterior,
to create one job in the industries of petroleum, metal products, and electrical power generation, investments of $18,960, $10,480, and $29,520 are required, respectively, whereas the tourist and travel industry required only $1,949. See Comercio Exterior, Mexico City: Banco de Comercio Exterior, Jan., 1970, p. 34.
47Gustavis Ranis, "Trade, Aid, and What?" Ranis, p. 163.






-32-


This overlookV th, adva-Ltogle Whicl ILe tourism Md travel industry offers--that of b im a welcome addition to rather than a substitute for exports, but als(o that this industry is a naturl resources-orienLed export and moreover, that the natural resources are of a rare type--di fficult to deplete. Most of the natural resources required for tourism such as sunshine, beaches, and natural beauty will continue to be available with reasonable care, whereas mineral resources, no mat ter how great are the reserves, must some day run out.

Professor Ronis cites the need for exports of the precise type which the tourism and travel industry provides when he writes:


Goods which draw on indigeneous entreprenCurship and organizational talent and which are responsive to per capita income
change abroad can be increasingly expanded
in the context of a growing economy.48


Unfortunately, he proceeds to discuss changing from a natural resource-dominated base towards more "sophisticated methods of production" as the means to manufacture these goods rather than demonstrating that tourism would provide the exports that draw on indigeneous entrepreneurship and are responsive to per capita income change abroad. The writer feels that this characteristic is extremely important in that one of the principal argUnen s given for the increased worsening of the terLis of trade of the LDCs is that their main exports, which are primary products, face an income in-elastic demand in the developed nations.



48Ibid., p. 163.






-33-


Nor apparently is the Department of Economics and Social

Affairs of the United Nation's any more aware of the benefits obtained from exporting invisibles as it reports on the period 19551965 in the World Econoiiiic Survy:


Some developing countries managed to diversify exports during the period or at least to
reduce their dependencies on a single item:
Brazil (coffee) . . Mexico (cotton and coffee).
49


In another section:


The only significant item to emerge in this
period was chemicals whose share of total Mexican
exports of manufactures rose almost Threefold to
one-fifth.50


It is difficult to comprehend why nothing is reported on the

growth of the tourism and travel industry when, in 1965, the last year of the period 1955-1965 being discussed, the exports of this

industry were valued at $782 million as compared to approximately $200 million for cotton and $93 million for coffee. Certainly an

export of this significance should not go unannounced. Similarly, the exportation of chemicals about which the Department of Economics and Social Affairs writes, provided onl.y $48 million in exchange in 1965 as compared to the $782 million mentioned previously. True,

the growth of the tourism and travel industry for the period 1955-1965



49United Nations, Department of Economics and Social Affairs,
"Dimensions of Recent Economic Growth," World Economic Survey, (Now York: United Nations, 1968), p. 45.
501bid., p. 23.






-34-


had only doubled as compared to the heralded tripling of chemical exports, but it did so from a base of $393 million in 1955 as compared to $16 million approximately of the chemical industry.51 In fact, one would gather from the yearbook that the tourism and travel industry does not exist as a meticulous examination failed to reveal one single reference to tourism.

One wonders to what extent the neglect of this industry in development theory and even in such widely circulated publications as the World Economic Survey of the United Nations contributes to the fact that the great majority of underdeveloped countries have failed to promote this industry which has so much to contribute to economic growth.

Fortunately, some underdeveloped nations have recognized the benefits to be derived. The small island nation of Barbados which received only $17 million in tourist expenditures from 91,000 tourists in 1967, last year (1969) obtained $45 million from 140,000 tourists. The exportation of visibles brought in $4.5 million in
52
the same year. That other LDCs are beginning to take heed is illustrated by Venezuela's recent decision to emphasize tourism.

In the national plan of government investment for the period 1970-1974, this government destined more than $168 million to the tourist sector. The major portion will be used to finance tourist

infrastructure such as airports and access roads to beaches, although



51Ibid., p. 95 and William 0. Freithaler, Mexico's Foreign Trade and Economic Development (New York: Frederick A. Praeger, 1968), p. 42.
52World News of Lhe Week, Volume 33, No. 19 (January 4, 1971),p.l.






-35-


promot ional efforts in other countries are not to be overlooked. Tiis is especially noteworthy sincu this nat-i-on receives a large amount of foreign exeha-nge from the p trolem industr , and will probably continue to do so for many years. Nevertheless, the government does not wish to be dependent exclusively on petroleum and is therefore attepting to diversify its exports. Tourism figures prominently in this export diversification plan. Venezuela has seen the number of

foreign tourists increase from 54,000 in 1.965 to 110,000 in 1969. Aided by the new government assistance, tourism is expected to account for receipts of $110 million by 1974. Besides serving to diversify Venezuela's exports, the tourism and travel industry is expected to be an import substitution industry as well so as to reduce the foreign expenditures of Venezuelan nationals who spent $134 million abroad in 1.969. 5

In Nexico, this industry has increased in importance until it has now become the greatest export of all. In 1969, it accounted for $1.2 billion in foreign exchange equalling the total value of the export sales of all goods and non-tourist services.54

Such examples as these illustrate that a few lcsser developed nations, at least, are becoming aware of the importance of tourism; however, as stated li Chapter I, little is known about the industry closely linked to tourism--that of providing goods and services to foreign retirees.55



53Leopoldo Vilar Borda, 'Venezuela Tiene Otro Filon de Oro," Vision, Deccmber 18, 1.970, pp. 36 C-H.
54Banco de N'xico, S. A., Annual Reyor 1969 (Mexico City: Banco do Mexico, S. A., 1970), p. 30.
55Because of the similaritV to the touerism and travel industry the writer suggesu;t s the ni C "perillmient tourism" for this industry.







-36




Before presenting the in foion coucelfing the econio ic

impact of these pople , it vl11 be necessary to describe the general area vhere a great number of Ameri(an. retirees are concentrated and to discuss the legal iequirements for ent ering M ico in this category.















CHAPTER III

JALISCO--ECONOMIC AND DEMOGRAPHIC DATA


Jalisco, where most of the retirees in Mexico live, is situated

in the east central part of the country between the northern parallels 180 58' 05" and 220 51' 49" and the western meridians of 1010 28' 15" and 1050 43' 16". As can be seen in Figure 1, Jalisco is bounded by the states of Nayarit, Durango, Zacatecas, and Aguascalientes on the north; San Luis Potosi and Guanajuato on the east; Michoacan on the southeast; Columa on the south, and by the Pacific Ocean and the state of Nayarit on the west.

The total area of Jalisco, the sixth largest state in the nation, is 30,900 square miles, which is 4.1 per cent of the total area of Mexico. In area, it is comparable to Maine.

Although Jalisco lies entirely in the tropics, the climate of the central region which includes Guadalajara and Lake Chopala, the areas to which the vast majority of Americans have retired, can best be described as mildly temperate. The fact that this area lies on a plateau about 5,000 feet above sea level accounts for the fact that in 1967 in Guadalajara, capital of Jalisco, the year round mean temperature was 73 F. with a high of 92 F. and a low of 35 F.1




iDepartment of Economics of the State of Jalisco, Jalisco: Continuidad y Dinamica (Guadalajara: Government of the State of Jalisco, May, 1969),pp. 23-25.


-37-
















INDEX TO ADMINISTRATIVE IrVISIONS
(Es~adas and rerrorw&)
1. BAIA CALIFORNA 1I. SAN LUS POTOSI Z-. D!FP'T, T . TERRtTORIO SU4 DE ll NAYAR, 24.TLAXCAJ
BAA CALIFORNA 13.AGUASCAL:INTrS 2 5, CU2P.Cu 4 3. SONORA ,4. VlRA CRUZ 25..M fiO 4. OC HUA UA . . 1ALISCO 27. QAKACA 5. COAHUIVA 16. GUANAT UATO ,9. TA 9A SCO 6. NUEVO LEON "17. QUER TAPO ,9. C 'IAP/.'Z 7. TAMAULT'AS 18. ,'!ALGO 3,CAY FC 8. S!NAT.OA 19. COIL.VA 3 U.A 'A,
0. DURANGO 20. S.:CIHOACA-N 2. T! 11,i O.ZACATECAS 21. MIXCO T 22. PUFJLA


Figure 1. Mexico






-39-


Table 1 presents th hc Iigh and low ' yperaturCs enc ountered by the writer during the mon t h of August, 1970, with temperatures of Mexico City aid s ome selected Ai inrican cities for purposes of comparison.



TABLE 1

HIGH AND LOW TEMPERATURES FOR GUADALAJARA AND SELECTED CITIES


CITIES

17 Guadalajara New York
Mexico City Atlanta
Miami

23 Guadalajara New York
Mexico City Atlanta Miami

Source: The News (Mexico City), August 18 and


TEMPERATURES HIGH LOW

76 61 86 79
75 73 90 73 88 82

77 63 79 75 72 55 86 Not given 90 79

26, 1970.


In general it may be said that the nights are usually mild to cold during the dry season (October-May) with sunshine prevailing during thL clay. The warmest temperatures are encountered in April and May just before the rainy season begins. During the rainy season, which lasts from June through September, the temperature is usually mild with rain falling nearly every afternoon and evening.2



2
American Consulate General., General Information on the
___dlajara Conslar District (Guadalajara: American Consulate General, May, 1969), p. 1. (Mimeographed).


DATE Augus


August







-40-


Rainfall for Guadalajara totalled 40 inches for the year 1967.3

As for natural resources, Jalisco is rich in minerals such as manganese, copper, iron ore, gold, silver, and lead. The more than 180 miles of coast line and the 11,000 square miles of forests provide excellent opportunities for the tourists and retirees to fish and hunt. Among the types of fish found are red snapper, sea trout, sharks, marlin, and sailfish. Game animals include the rabbit, gray fox, jaguar, deer, wild boar, and puma. For those preferring to hunt birds, there are quail, wild turkeys, ducks, and geese.

Agriculture is an important industry in the economy of Jalisco contributing to over 20 per cent of the gross product in 1969 (see Table 2).

Approximately 25 per cent of the total area of the state is
.4
under cultivation and a variety of crops is grown as shown by Table 3.

In terms of tonnage,corn is the most important crop in

Jalisco; in fact, Jalisco is known as the "corn state." Although other crops are less important on a tonnage basis, it is interesting to note that their production is a large portion of the nation's total. Chick peas, peanuts, linseed, and strawberries are examples of these.



3Government Department of Economics of the State of Jalisco, Jalisco: Continuidad,p. 24.
4Ibid., p. 157.










TABLE 2


GROSS PRODUCT FOR STATE OF JALISCO
1960, 1967, 1969
(Millions of dollars converted from 1960
pesos at 12.50 pesos = $1)


1960 Percent 1967 Percent 1969 Percent

TOTAL 679.3 100.00 1,163.0 100.00 1,363.8 100.00 PRIMARY SECTOR 130.1 19.16 235.9 20.28 280.1 20.53 Agriculture 74.4 10.96 145.1 12.48 175.6 12.88 Animal Husbandry 52.2 7.69 86.1 7.40 99.3 7.28 Forestry 3.1 0.45 3.5 0.30 3.6 0.26

SECONDARY SECTOR 175.6 25.85 315.5 27.13 373.4 27.38 Mining 10.0 1.47 20.1 1.73 24.6 1.80 Manufacturing 141.8 20.88 251.0 21.58 295.5 21.67 Construction 19.1 1.81 37.7 3.24 45.8 3.36 Electrical Energy 4.7 0.69 6.7 0.58 7.5 0.55

TERTIARY SECTOR 373.6 54.99 611.6 52.59 710.3 52.09 Commerce 129.3 19.03 249.8 21.48 301.8 22.13 Services 56.1 8.25 113.9 9.79 139.5 10.23 Banking 38.5 5.67 57.4 4.94 64.5 4.73 Government 72.1 10.62 81.9 7.04 84.7 6.22 Communications 77.6 11.42 108.6 9.34 119.8 8.78

Source: Department of Economics of the State of Jalisco, Jalisco: Avance v Perspectivas Industriales, February, 1970, Table 1.







-.4L 2-


TABLE 3

PRINCIPAL! CROPS FOR 1969

Per cent of
Production National. (000 Short Tons) Production Corn 2,915 28.47 Sugar Cane 2,530 9.55 Alfalfa 232 3.11 Sorghum 216 12.49 Beans 152 15.00 Chick peas 94 53.12 Peanuts 32 24.1-6 Linseed 8 36.84 Strawberries 3 18.33

Source: Secretariat of Agriculture and Livestock, Agency in Jalisco.



As noted in Table 2, animal husbandry contributes greatly to Jalisco's economy. In 1969, there were 3.2 million cattle and 2.5 million hogs. This was an increase of 48.6 per cent and 139.5 per cent, respectively, over the year 1964. As a result, Jalisco

ranks first in the nation in the number of hogs and second in

5
cattle.

Turn:Ing to the human resources, Jalisco had a population



5
GoverniTent of the State of Jalisco, Jalisco: limaen 70
(Guada]ajara, Jalisco: Government of the State of Jalisco, 1970), p. 11.






-43-


of 3,322,750 in 1970 as compared to 2,443,261 in 1960--a growth
6
of over 35 per cent. Another demographic feature which bears on the character of this state's economy is the very young composition of the population. In 1967, 44.5 per cent of the population was 14 years of age or younger while only 12 per cent were 50 years

of age or older. More than half of the total population fell in the age group of 5 to 29 years of age. Although the birth rate had fallen to 42 per thousand inhabitants by 1967 from 48 Der thousand in 1947, the death rate had also fallen from 12.7 in 1957 to

9.5 per thousand inhabitants in 1967.

The young composition of Jalisco's population has required a constant increase in the number of schools required as well as teachers. Table 4 indicates the progress which has been made in the field of education.

For the construction of physical plant alone, Jalisco spent almost 1.7 million dollars annually in 1966 and 1967.7

The economically active population had increased in size from 517,000 in 1947 to 988,000 in 1967. Of these, 45 per cent were employed in the primary sector, 24 per cent in industry, and 31 per cent in services.8

Of all the sectors of the state's economy, it is the industrial sector which has been most dynamic in the last five years and



6Nacional Financiera, S. A., El Mercado de Valores (Mexico City: Nacional Financiera, S. A., March 9, 1970), p. 128.
7Government of the State of Jalisco, Jalisco: Continuidad,
op. cit., p. 104.
8Ibid., p. 30.







-44-


TABLE 4

GROWTH INDICATE; 01F IE EDUCATI ONAL SYSTE 1, 1965 -1968


Years Schools Teachers Students-PRIMARY EDUCATION

1965/1966 2,560 8,567 475,279
1967/1968 2,814 10,592 580,361

SECONDARY EDUCATION

1965/1966 146 2,725 31,720 1967/1968 187 3,686 48,066

TECHNICAL, INDUSTRIAL, AND COMMERCIAL EDUCATION

1965/1966 41 350 11,610 1967/1968 44 342 14,140

PREPARATORY EDUCATION (MEXICAN HIGH SCHOOL EQUIVALENT)

1965/1.966 31 935 9,126 1967/1968 34 1,293 14,221

NORMAL SCHOOL EDUCATION

1965/1-966 12 261 3,196 1967/1968 12 264 3,517

PROFESSIONAL EDUCATION

1965/1966 38 1,550 13,615 1967/1968 41 1,866 19,725

Source: Secretariat of Public Education and Department of Public Education of the State of Jalisco.



within this sector, manufacturing has led in contributing the greatest increase in the value of produc tion and in persons and capital employed (see Table 5).

The data in Table 5 indicate the tendency of manufacturers in Jalisco to adopt capital intensive production methods. While the










TABLE 5


JALISCO: PRINCIPAL INDUSTRIAL INDICATORS, 1960, 1969 (Millions of dollars converted from 1960 pesos at 12.50 = $1)


Per cent Per cent
Annual Annual
1960 1969 Increase 1960 1969 lncrease

Value of Production Value Added

TOTAL 417.5 1,022.9 10.5 175.6 373.4 8.7
Mining 9.9 34.8 14.9 10.0 24.6 10.5 Manufacturing 317.2 761.1 10.2 141.8 295.5 8.5 Construction 84.5 214.8 i0.9 19.1 45.8 10.3 Electrical Energy 5.9 12.2 8.4 4.7 7.5 5.5


investment in Fixed Assets People Employed TOTAL 173.0 459.8 11.5 127,283 226,612 6.6
Mining 6.5 22.5 14.6 4,771 8,384 6.5 Manufacturing 114.4 311.3 11.8 87,166 159,761 7.0 Construction 29.0 72.2 10.7 32,011 55,067 6.2 Electrical Energy 23.1 53.8 9.8 2,335 3,400 4.3


Censu


Note: The four divisions of the industrial sector are those recommended by the United Nations. Source: Estimates of the Department of Economics of the State of Jalisco based on the VIII Industrial S.






-46-


value of capital assets almost tripled in value, the number of people employed less than doubled for the same period.

Among the most important industries are those of footwear,

textiles, beverages, and food products such as vegetable oils, refined sugar, flour, and meat packing. One of the beverages, tequila, produced over two million dollars in foreign exchange in 1969 as a considerable part of the five million gallon production was exported to 40 countries although the United States was the principal buyer accounting for 90 per cent of all tequila exported.9 It is probably safe to assume that many American consumers acquired a liking for tequila while they were visiting Mexico as tourists.

The constant increase in population coupled with an increasing per capita income has resulted in a greater demand for services whose gross product in 1969 was valued at approximately 140 million dollars as noted in Table 2. Another factor in the increased demand for services is the growth of tourism which, in 1968, was the largest source of income to the State of Jalisco.10

In 1969, over two million tourists, both national and inter11
national, visited Jalisco and spent 175 million dollars. This figure is more than four times the state government's entire annual 12
budget of 40 million dollars. Of these two million tourists,



9jalisco, Department of Economics, Jalisco: Avance,
pp. 14-26; Nacional Finaciera, S. A., El Mercado de Valores, November 16, 1970, p. 672, and "Tequila, Bebida que Gana Adeptos 7 Mercado," Yio_n, September 11, 1970, p. 66.
lODepartment of Tourism, Focus on Mexico (Mexico City: Department of Tourism, January, 1969), p. 3.
lBanco de Comercio, Panorama Economica (Mexico City: Banco de Comercio, March-April, 1970), p. 25.
12EI Occidental (Guadalajara), August 19, 1970, p. 1.






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226,400 v,re foreigi and ovc 95 pec cent of these were residlnts of the United States. App]ying ther average, eXpenditurc of $224 as calculated by the Mexican Tourist Bureau, it is estimated that approximately 51 million dollars in foreign exchange was contributed to 13
the state' s economy by international tourism.

The government of Jalisco has officially divided the state

into five regions. Figure 2 illustrates this division. Of the five regions, it is the central in which most retirees reside, although there are some living in the coastal region resort cities of Puerto Vallarta and Barra de Navidad.

In the central region, nearly all of the retirees are located

in the Guadalajara-Lake Chopala area. The principal cities with respact to the number of retirees living there are Guadalajara, Chopala, Ajijic, and Jocotopec. These last three are located on

the shore of Lake Chopala which is Mexico's largest lake, measuring 60 miles in length and varying from between 12 and 20 miles in width.

Informed sources estimate that about 75 per cent of all the retirees in Jalisco reside in Guadalajara, the state capital. Preliminary data from the 1.970 census indicate that there are 1,196,000 inhabitants in this city which is the second largest in the country.14

Guadalajara lies about 5,000 feet above sea level as do Chopala,

Ajijic, and Jocotopc. Its latitude is that of the Hawaiian Islands.



13
Department of Tourism, Focus on Mexico o
1969, p. 4. ,p. cit., August
14
Naciona] Financiera, S. A., El Mercado de Valores, March 9, 1970, p. 129.







-48-


CENTRAL REGION


$


APPRoX. SCALE r C _


M4L E I


Figure 2. Jalisco and its five economic regions
including the central region.






-49-


According to the 1965 industrial census, 70 per cent of the industrial establishments of the entire state were located in the metro15
politan area of Guadalajara. This heavy concentration of industry is expected to be reduced in time as the state government is actively engaged in persuading new industry to locate in other parts of the state. Although Guadalajara had 4.42 per cent of the total of

-Mexico's urban population in 1966, wholesale operations in this city accounted for 6.35 per cent of the national distribution of hard goods and 6.51 per cent of the national distribution of soft
16
goods. This indicates the importance of Guadalajara as a distribu.tibn center not only for the immediate area, but also for northwest
17
Mexico.

Tourism is of great significance for Guadalajara as it is

estimated that 90 per cent of the two million tourists visiting the state in 1969 went to see Guadalajara while only 10 per cent visited other areas within the state.18

The aforementioned cities of Chopala, Ajijic, and Jocotopec

are basically combinations of resort and Indian fishing villages of 6,000, 3,500, and 3,000 inhabitants, respectively.19



15Nacional Financiera, S. A., El Mercado de Valores, December 22, 1969, p. 849.
16Marynka Olizar, A Guide to the Mexican Markets (Mexico City: Marynka Olizar, 1968), p. 249.
17American Consulate General, General Information, p. 1.
18E1 Occidental, p. 3.
19Norman D. Ford, Fabulous Mexico (Greenlawn, New York: Harien Publications, 1970), pp. 115-117.















CHAPTER IV

LEGAL AND FINANCIAL REQUIREMENTS FOR RETIREES


Although Mexico welcomes foreign retirees, it does have certain
1
legal and financial requirements. These latter, as will be shown later in this study, have provided a new source of capital for Mexico's development over and above what is received from the retirees' expenditures.

There are three general categories under which U. S. citizens may enter Mexico to live: (1) Tourist, (2) Visitor, (3) Immigrant.

Many newcomers to Mexico take up residence under the tourist status as this is the quickest and easiest manner of entering the country. A tourist card may be obtained, free of charge, at any Mexican Consulate, through airlines, or from the Mexican Immigration Office at any border crossing. American citizens do not need a passport: proof of nationality such as birth certificate, Armed Force discharge, baptismal certificate, voter's registration card,



1The information for this chapter has come from a combination of the personal experience of the writer and the following sources: Eduardo de Sevilla P., "Los Valores de Renta Fija y Su Rendimiento," Vision, December 4, 1970, pp. vi-vii; Rafael M. de Escobar, How to do Business in Mexico (New York: Exposition Press, 1961), pp. 1-50; Norman D. Ford, , pp. 36-57; and personal interviews with executives from Financiera General, S. A. and Banco de Comercio, S. A., in Guadalajara, Jalisco, during the month of August, 1970.


-50-






-51-


or a wi tncssed afridavi t of place of birth are accepted. The touris t card per! ts the holder to remain in Mexico for 180 days. Along with the tourist card a free automobile permit will be issued for the same period. House trailers, boats, and boat trailers may be entered on the automobile permit. To obtain this permit, the tourist must present his driver's license, car title, and automobile registration. A bill of sale is proof of ownership of trailers or boats. If any of this equipment is borrowed or if the automobile title shows a lien, a notarized authorization from the owner or lien holder is required.

A tourist may bring accompanied baggage to Mexico without payment of duty. This baggage should contain only a reasonable amount of personal effects arid items for personal use. The personal effects may include one still and one motion camera, sporting and camping equipment, cigarettes, liquor, and a portable radio or television set.

As a tourist, one may rent a house or lease real estate anywhere in Mexico and by means of a private contract with a lawyer or a bank, real estate may be purchased anyiihere in the country. A tourist may not,however, accept paid employment, engage in business, or own real estate in his own name. At the end of the 180--day period, a person who has entered Mexico on a tourist card must leave. There is nothing to prevent his re-entering immediately, however. As will be noted later, there is a considerable number of retirees living permanently in Mexico under this status.

Although the student status is not one under which retirees

normally would enter Mexico, legally they can do so if they wish to.







-52-


llere is no age limit and anyone can qualify as a student by taking as little as one course in Spanish. People in this category do not have to leave Mexico every 180 days as tourists are required to do. Non-immigrant students who wish to enter Mexico for more than six months may be admitted for a period up to one year to enroll in day classes at an approved official or privately incorporated educational institution. Although a student visa is issued for one year, it may be renewed. To qualify for admittance under this category, the prospective student must show proof that he will be enrolled at an acceptable Mexican school and that he possesses the financial resources necessary to be able to complete his studies. It has been estimated by an official at the American Consulate in Guadalajara that there are 1,000 American medical students enrolled in medical school. Approximately 500 of these are married. Tuition for medical school is $2,000 per year and the average expenditure for maintenance of each student is $5,000 per year. In addition, there are approx.imately 3,000 American suITier students who pay an average tuition of $400 per student. Expenditures for maintenance for these students is conservatively estimated to average approximately 1,000 dollars per sumnier per student. Thus, over 11 million dollars annually is spent by American students in Guadalajara.2

For those who do not wish to live permanently in Mexico, but do desire to remain longer than six months, there is the second category of Visitante-Rentista (visitor receiving a fixed income).




2Interview with officials of the American Consulate in Guadalajara, August, 1970.






-53-


This classifica t-ion was in t Iroduced in 1962 as part of a plan to liberalize the requircri nLs for perm:tncnt residence. It was designed to allow American ret-irees to sample life in Mexico as permanent residents for a trial two-year period.

To obtain entrance under this category, a United States passport is required as is proof of a minimum fixed income of $160 per month for a single person or for the head of a household plus an additional $80 per month for each dependent over 15 years of age. The original permit is for six months' duration, but may be renewed three times without having to return to the United States' border. At the end of two years, those who have entered Mexico under this status must leave the country; however, they may re-enter immediately on a tourist card or may apply for a new Visit-ante-Rentista permit. To qualify for this permit, the applicant must be 55 years or older, and his income must be derived from sources outside Mexico. There is one important exception about which more will be mentioned later in the report and that is, income from Mexican securities or mutual funds is perriissible. An automobile and personal possessions may be brought in for tie period of residence, but the same legal restrictions on purchasiing real estate apily in this case as they do for tourists.

For the non-Mexicans who wish to become legal permanent residents, there is the third category of Inmigrante (immigrant). An iigrante is one who enters M1exico to establish residence and intends to acquire the stattus of permanent resident (inmig ado).3



3Literally, "one who has immigrated."






-54-


Until the inmigrante has attained the inmigrado status, he may not seek employment in Mexico and may not engage in any business except that for which he was admitted, if in fact he was admitted for the purpose of engaging in business, as is possible under some of the

classifications of inmigrante.

The inmigrante remains in this probationary status for five years. During this time, he may not be absent from Mexico for more than 90 days during the first two years nor more than 180 days during the entire five-year period. At the end of each year's residence, during these five years, permission must be obtained to renew the inmigrante status from the Department of Interior (Gobernacio'n).

There are seven categories of inmigrante.

1. Family Members

The financially dependent alien spouse or
blood relatives up to the third degree who are supported by a Mexican citizen, inmigrante, or
inmigrado may be admitted in the category of
inmigrante.

2. Technicians and Skilled Workers

Alien technicians and skilled workers may be permitted to enter as inmigrantes, if their services,in the opinion of the Secretaria de Governaci~n (Department of Interior), cannot be rendered
by residents of Mexico.

3. Executives for Positions of Responsibility

Aliens may enter Mexico to assume executive or
other positions of high responsibility in firms already established in Mexico if it is felt by
Gobernaci6n that their services are required.











4. Prof :ioniI s

People couisidired by the tgovernent to have
outstanding compt :ence,in a field where such
capabilities cannot be obtained locally, mny be
admitted in this category. University professors to teach specialLies new to Mexico enter in this
s tatus.

5. Capital Investors

An immigrant in this category is admitted
exclusively for the purpose of investing capital
in any branch of agriculture, industry, or export
trade. The purchase of shares of stock of a
Mexican corporation is not considered an investment which will qualify in this category. The
law requires that the minimum inves mfent for the
Federal District (Mexico City) and adjacent states
must be $48,000. For the rest of Mexico, the minimum investment required is $16,000. There
are special cases where the government will permit a smaller investment such as in remote or
under-exploited areas or in industries judged to be essential to the economy of Mexico. Investors
are forbidden to be gainfully employed in any
activity except that in which they have invested.

6. Investors in Securities of the Federal
Covernient or of the National Credit
Ins titutions

A person may obtain inmigrante status by investing in either government securities or in
approved securities of national credit institutions. The amount invested must be sufficient
to produce an income of $240 per month for a single person or head of a household and $80 per month for each dependent over 15 years of age. The securities which make up the investment must be deposited with Nacional Financiera,
the government bank for industrial development.
The dividends or interest earned may be freely
withdrawn, however.

7. Retired Income-holder

To qualify under this category, a single
person or head of a household must receive a minituim fixed nonthly incoliie of $240 for himself and $80 for each dependent in his family who is over 15 years of age. This income may






-56-


coue from any reliable source from any part
of the world, Formerly, the uini'Lt) monthly
incoios r'y,,iircd were $320 and $160, respecctively,
but,in 1962, these requircenwnts were lo,.ered to
the present- $240 and $80. This reduction in minimum income requirements resulted from a
study on the cost of living for retirees which
was made by orders from Miguel Aleman, ex-president and head of the Tourism Department. lie recognized the contribution which foreign retirees could make to the growth of Mexico and, therefore, searched for ways to not only make
retirement in Mexico more attractive, but also
to permit more foreigners to retire there.
The creation of the category of VisitanteRentista and the lower income requirements for
the retired income-holder are the results of
his efforts.


All inmigrantes may bring with them household effects such as appliances, furniture, and clothing, but only those in the categories of Retired Income-holder and Investors in Securities of the Federal Government or of the National Credit Institutions are permitted to bring an automobile duty free. The inmigrante-rentista may not sell or otherwise dispose of the vehicle in Mexico, but he may do so outside of Mexico and then return with a substitute without paying duty. Prior permission to do so must be obtained from the Department of Industry and Commoerce. This is an added inducement to retirees whom the Mexican goveriment expects will enter under these two categories to the exclusion of the other five classifications of inmigrante

The inmigrante-rentista is not permitted to engage in remunerative employment and is expected to live from the income received from "reliable sources" as mentioned previously. The "reliable sources" include annuities, a United States government or corporate pension, United States Social Securi ty, investment companies, or trust. funds administered by an American or Mexican bank. Rental







-57-


income from real estate aw oved in the United States is also acceptable as a "reliable sotirce."

If the retiree prefers, he mny deposit 14,400 dollars for himself and 4f,800 dollars for each dependent 15 years or older in a designated Mexican bank and monthly payments equal to the minimum required by law will be made to him during the five year period as an inmigrante. Since an inmigrante-rentista must apply for renewal of his status every year, he may deposit annually only $2,880 for himself and $960 for each dependent 15 years or older. It is not necessary to deposit the entire amount for the five-year period at one time.

Because of the higher return received in Mexico on fixed income investments, many retirees who lack sufficient fixed income to meet the legal requirements bring money to Mexico where it is invested.

Following is a list of the most popular fixed income investments with their interest rates as of Docember, 1970:


1. Deposit Banks

Time deposits for periods from 180 to 720
days yield 8 per cent interest on which no income tax is required to be paid. The interest
earned is paid monthly.

2. Mor tgage Banks

These banks are simile ar to the American savings and loan associations. They ].end funds
on improved real estate. The mortgage bank
offers certificates (Cedulas Hipotecarias) which
are backed by their assets and a real estate mortgage. They will sell or redeem unlimited amounts of these certificates at sight. The
certificates are legal inves tents for Mexican
trust funds and insurance companies and are
sold in minimum denominations of $8. They






-58-


yield 8 per cent annually which is nontaxable and is paid monthly. Mortgage
bonds, which they also offer, are similar
to the certificates and yield the same 8
per cent on which no tax is paid. Mortgage
banks issue certificates which are essentially time deposits for one year and five
years. They pay 9 per cent and 9.6 per
cent respectively after income tax which they deduct and remit to the government.
Again, interest payments are made monthly.

3. Investment Banks

These institutions are chartered and are
under the control of the Central Bank and the Treasury Department. Their activities are regulated by the National Banking Commission. Investment banks were formed for the purpose of promoting industry by lending funds against accounts receivable and for making loans for all legitimate agricultural and industrial purposes. Approximately 60 per cent of all financing of the
private sector in Mexico is supplied by these
banks. Nearly all are privately owned and
many belong either to large commercial banks
or to strong financial groups. They issue
bonds which pay 9 per cent interest net.
These bonds are sometimes called "interest
bearing checking accounts" because they are
redeemed on demand. Certificates for periods from two to ten years are also issued
and pay interest ranging from 9.24 per cent
for the two year certificates to 10.07 per
cent for the ten year certificates. Interest
is paid monthly. These certificates are
readily negotiable and in the free market as
of December, 1970, a two year certificate
was being quoted at 94 which would provide
a yield of 13 per cent. Promissory notes
or Time Deposit Contracts are still another
form of investment bank paper. Interest
is paid monthly and varies from an annual
rate of 10 per cent net for sums up to
$40,000 to 11 per cent net for $80,000
in the larger investment banks; in the smaller banks, the rates vary from 10.5 per
cent to 12 per cent net.






-59-


4. Nacional Financiera

This government bank for industrial development issues obligations for a period of 3 years which yield 12 per cent
paid every 3 months. As this interest is
tax free, the 12 per cent is net. Nacional
Financiera obligations are highly liquid
and if the investor resells them at the end
of I or 2 years, the yield is reduced to 9
per cent of 10.5 to 11 per cent net respec tively.

5. Telephone Company Bonds

These bonds carry a net interest rate after taxes of 8.7 per cent on a par value
of 100. Inasmuch as the market price has
been at considerably under par, the net long
term yield has been at about 14.4 per cent.


Income from any of the aforementioned investments may qualify

as income from "reliable sources" as long as the investor leaves them in a trust which is administered by a Mexican bank and agrees not to sell them during the year for which he is requesting permission

to live in Mexico as an inmigrante. Should he desire to do so, he may dispose of the investments, but the Mexican bank administering the trust must notify Gobernacion immediately that such action is being taken. The inmigrante-rentista must then show that he is receiving an equivalent income from other "reliable sources" or he will be asked to leave the country.

After having resided in Mexico lawfully as an inmigrante,

the non-Mexican may apply for the status of inmigrado. At this time, he will be required to show that he expects to continue to receive at least the minimum income from "reliable sources" as before. Once an inmigrado, however, he may then engage in any legal, remunerative endeavor and he is not required to apply each year for an extension






-60-


of his permission to remain in Mexico as he had to do as an inmigrante. He also can enter and leave the country as often as he wishes. The inmigrado status may be lost if he remaines out of Mexico for two

consecutive years or for five years in any ten-year period. Once he becomes an inmigrado, he must pay the Mexican duty on his automobile.

Inmigrantes and inmigrados are required to pay Mexican income tax only on investment income from Mexican sources and at the same time, all Mexican investments are exempt from the United States interest equalization tax. All interest and dividends are received by the investor with income tax previously deducted at the source and there is no necessity to report this income to Mexican tax officials. Thus, if a retiree is not gainfully employed, he does not need to declare nor pay income tax except in two instances. Rent received from Mexican real estate is subject to taxation as is property. Property taxes are extremely low and are often based on outdated assessments. The tax on an average house runs from $10. to $70. per year.

One further observation about the inmigrante status should be made. A number of retired couples have been able to enjoy the benefits of being both tourists and inmigrantes. One member becomes an inmigrante which permits him to own land in his own name while the other remains in the tourist status and therefore is able to bring into the country a new automobile without special permission each time a border crossing is made. In addition, only the member of the family who is an inmigrante must show a source of income from reliable sources and only the $240. monthly for a single person is required.
















CHAPTER V

RESEARCH I'ROCEDURE


To measure the economic impact of the American retiree, it was first necessary to obtain data on their expenditures.

Originally, it was planned to use a probability sample and because all. American residents are requested to register with the American consulate in Guadalajara, it was though that it would be relatively simple to prepare a frame based on the consulate files. From this, a simple random sample could be drawn. This plan had to be abandoned after a mceting with consular officials assumed that this amounted to about 30 per cent of all the retirees living in the state of Jalisco.

It was apparent that a frame based on the registration of retirees with the American consulate could be biased. There was no basis for judging whether or not this saniple was representative of the entire population.

As there is a society of Aiierican residents in Jalisco, American Society of Jalisco, the possibility that its membership list might serve as a suitable frame was examined. However, this list included only 250 members, approximately, and of these a substantial number were not retirees, but gainfully employed Aericans. Others





]'ersonal interviews ;v1ih various men fn)ers of the American consulate in Guadalajara, Jalisco, Augst, 1970.

-61-






-62-


were residents of the thitted States Xvho had formerly lived in Mexico. This obviously was not a representative listing of American retirees.

An attempt :as made to combine the meibership lists of American lodges, churchcs, bridge clubs, and the American Legion. This plan was rejected for the same reasons that the American Society's list was not used. Many American retirees do not belong to any formal group. In addition, they are extremely mobile--within the city of Guadalajara, within the country of Mexico, and between Mexico and the United States.

During the process of investigating the aforementioned possibilities, many interviews were conducted with American businessmen including an official of the Guadalajara radio station which broadcasts in English and the editor of the weekly English newspaper. Officials of American organizaLions were interviewed as were Mexican officials of the State of Jalisco Department of Tourism and the local office of Gobernaciln. While extremely useful information was obtained concerning characteristics of the various strata within the toLal population, it was impossible to obtain a frame which would permit the use of a stratified probability sample. It was becoming apparent that non-probabiliLy sampling could be employed and fortunately, it was found that the American retirees in Guadalajara tended to live in a few, rather well-defined areas. Further, it was the consensus of those interviewed that within each area, the retirees living there appeared to be in approximately the same economic stratum. Since the pri.airy aim of the survey was to establish the spending patterns of the Awerican retirees in Jalisco, it appeared that the






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use of non-probabili ty area sampling could permit a represen tative sample to bc olttaiined. The writer felt, partly because of having lived in Mexico for maiiy years, but more ii,)portantly because this was the opinion of the businessmen and officials obtained during the initial interviews, that the American retiree population was considerably more hom1ogencous than would be the population of an American city of the same size. Not everyone wishes to leave his country of birth and his friends and relatives to spend the remainder of his years in a foreign country where the language, laws, customs, and even the food are different from what he is accustomed to encountering. Other factors limiting the heterogeniety of the popuation are the legal and financial requirements discussed in Chapter IV.

This belief was considerably substantiated when permission was given to examine the files of an expert who specialized in processing the applications of prospective iLmi,rante-rentistas as well as the annual renewal of their status after having been admitted initially. Not only did the names and addresses assist in preparing a list of retirees to be interviewed, but the information as to sources and amount of income proved to be invaluable as a coiiLrol against which the respondent's information was checked. A copy of the data sent to the MNxican government was maintained in each file.

One salient fact emerged. If the Mexican governmcnt estimates the contribution of the retirees to the economy based on the income declared by the retiree, its estimates will be understated by at least 50 per cent as in the majority of the cases, only the required minimum income was stated as being received. Other information in these






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files often show ed that as nmch as fivc times this minimum was actually being sent to the retiree by such Aerican sources as banks, pension funds, and others . It is understood that Mexican investment banks, mortgage banks, and other instiLuLions approved by the Mexican government for investm-ent by the retirees report to the federal government the amount held by inmigrante-rentis Las, but, of course, this does not resolve the previously mentioned problem of understatement of income received from sources outside of Mexico.

To determine the amount of money being brought into the country by retirees, it was apparent that even if permission were obtained to examine the official government files, the data obtained would be totally inadequate. Thus, a summation of the retirees' expenditures appeared to be the only feasible way to obtain the desired information.

It was felt that most retirees were receiving incomes which were expected to cont iue for the rest of their lives and therefore, there would be little reason to save for any extended period. The information contained in their applications for inmigrante-rentista confirmed the fact that most incomes were indeed permanent and although the question as to whether they tended to save something from their incomes was not specifically asked in the questionnaire, the writer,

who conducted all interviews, did raise this question in connection with the "other" category when monthly expenditures were discussed.2 Such saving as was done was usually spent during the year on trips to





2See Appordix.







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the United States or on travel within Mexico. Of the 263 interviews conducted, 164 respondents or 62.4 per cent of those interviewed did travel to the United States during the year.3 Also 179 respondents or 68.1 per cent of the people interviewed gave travel as one of the activities in which they participate. Travel was the most popular of all activities mentioned (26.5 per cent of the total response).

To obtain the desired representative sample, it was necessary to know not only how large the total population is, but also how this population is divided among the various economic strata. Since spending patterns probably would vary according to whether the respondent lived in the metropolitan city of Guadalajara or in smaller population centers, a breakdown of the total population according to where the respondents lived was needed. A precise distribution of the population was impossible to obtain; in fact, there are no official data on the total number of retirees living in the state.

As noted previously, members of the American consulate estimate that there are 10,000 retirees in Jalisco and many writers of popular books cite this figure. Yet in various preliminary interviews, other estimates were made of the total number of residents as well as the retiree population of various cities and villages. Some sources cited percentages while others offered numerical estimates. The local head of Gobernacion, the governmental entity in charge of maintaining control of foreigners residing in Mexico, estimated that there were




3Data obtained from question 17.






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somewhat more than 10,000 American retirees living in Jalisco as inmigrantes or inmigrados, but that there were an untold number of American residents with only tourist papers. As these people are included in the total number of tourists entering and leaving Mexico, there is positively no way by which the tourists who are permanent residents may be separated from the legitimate tourists in any official data.

As estimates of the tourists who are permanent residents in Jalisco ranged from 2,000 to 4,000, it was decided to use a value midway between these extremes; therefore the total population of American retirees in Jalisco was considered to be 13,000. During the survey, it was found that the respondents who were tourists freely admitted it when they answered question 20. Tabulation of these responses indicated that 66 out of a total of 263 respondents stated they were tourists. This is 25 per cent of all respondents. It was interesting to note that the 25 per cent result also held for residents of Guadalajara and for the rest of Jalisco, This is to say, the survey indicates there was no higher concentration of tourists who are residents in one area than in the other. Because of the statement made by the head of Gobernacion in Jalisco to the effect that there are somewhat more than 10,000 legal retirees (those having inmigrante or inmigrado status), the writer used as a basis for his calculations 10,500 legal residents. The results of applying the 25 per cent value found in the survey to the 10,500 figure indicate

that there may be perhaps 3,000 to 5,000 residents in the tourist category which would bring the total population to somewhere between 14,000 and 16,000 residents rather than the 13,000 assumed for






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sampling purposes. Certa nly, as a result of this study, it seems clear that there are nany more American ret irees living permanently in Jalisco than indicated by the "official" estimate of the American consulate.

The businessmen and officials questioned initially, generally estimated that there are 10,000 American retirees living in Guadalajara or stated that about 75 per cent of the total retiree population in the state of Jalisco lived in Guadalajara. The Lake Chapala area reporter for the newspaper serving the English-speaking colony in Jalisco, who has resided in this region for many years, furnished an estimate of the number of retirees living in various cities and villages around the lake. The total of these estimates were approximately 2,000 residents. This plus the declaration of the governor of the state of Jalisco to the effect that there are about 1,000 American retirees living in Puerto Vallarta seem to substantiate the estimate of 13,000 made by businessmen and government officials in the initial interviews referred to previously.4

Once the estimate of the total population was made, it was then

necessary to estimate the number of households as this is the unit for which the data were to be taken. Information obtained in the preliminary interviews indicated that the average household consisted of 1.75 persons. This value was used to convert the total population to the number of households. It was felt that a reasonable sample which could be attained in the time available of approximately one month would be 3 per cent of the total population.




4t"Cove -or Declares," _1he News, (Nexico City), August 21, 1970.











To assist: in obtaining interviews, cooperation was recquested of the English newspaper and the Guadalajara radio station which broadcasts in English. As a result of this publicity which not only explained why the survey was being undertaken, but also assured tile respondents of complete anonymity, there were only two refusals to consent to interviews and al1 information was freely given. In many instances, it was found that the respondents had collected information on expenditures so that it was readily available when the interview was conducted. Without this valuable assistance, the 3 per cent goal could not have been reached in the time available.

Table 6 presents the original goals of households to be interviewed along with the number of households that were actually visited.



TABLE 6

CALCULATION OF NUMBER OF RETIREE
HOUSEHOLDS TO ESTABLISH SAMPLE SIZE


SAM PLES
TAKEN AS PERHOUSE- SAMPLE SAMPLE CENTAGE OF PEOPLE HOLDS GOAL TAKEN TOTAL POPULATION Total Population 13,000 7428 223 261 3.54 Guadalajara 10,000 5714 172 202 3.54 Rest of Jalisco 3,000 1714 51 61 3.56



After the 263 households were interviewed, it was found that

these were comprised of 473 people. If the sample is representative of the universe, then there was an average of 1.8 people per household rather than 1.75.


- O







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The 202 households that were int:erviewed in Guadalajara were

comprised of 358 people aid 1te 61 households interviewed in the rest of Jalisco included 115 people. T1his would mean that the average household in Cuadalajara consisted of 1.77 people and the average household in the rest of Jalisco was composed of 1.89 individuals.

If the value of 1.77 and 1.89 obtained from the survey had been employed rather than the 1.75 value which was actually used, then it may be seen from Table 7 that three additional households should have been samwpled in Guadalajara and three less should have been taken in the rest of Jalisco.



TABLE 7

RECALCUIATION 01' THE NUMBER 'OF RETIREE HOUSEHOLDS TO ESTABLISH SAMPLE SIZE USING VALUES OBTAINED IN SURVEY



SAMPLE TAKEN
SAMPLE AS PERCENTAGE
PEOPLE HOUSEHOLDS TAKEN OF POPULATION Total Population 13,000 7222 (13L_000) 263 3.64
1.8
Guadalajara 10,000 5644 (10,000) 202 3.57
1.77
Rest of Jalisco 3,000 1587 ( 3,000) 61 3.84
1.89

Note: The sum of the households for Guadalajara and the rest of Jalisco do not equal the households in the total population because of rounding off of the number of persons per household.


1t was found that there fundamentally were six areas called

colonias within Guadalajara, one suburb, and one housing development where the American retirees tended to live. They are as follows:






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1. Jardines del Country

2. Lomas del Country

3. Chapultapec Country

4. Circunvalacion Vallarta

5. Chapalita

6. Providencia


The housing development, Rancho Centento, is located on the outskirts of Guadalajara and has been built primarily for American

retirees. The suburb is Zapopan whose limits are contiguous with those of Guadalajara.

Because of the lower wages which are demanded by Mexican assistants, a number of American handicapped people have retired to special homes located in the colony Cuidad del Sol.5 Approximately 100 of these handicapped persons are retired there and three interviews were made at one of the homes to assure that these people were included in the sample.

Nearly all of the people interviewed outside of Guadalajara resided in the cites of Chapala, Ajijic, and Jocotopec. This was done on the recommendation of various long-time residents of the lake area including the reporter who covers this region for the English newspaper. Care was taken to include the two most important retirement projects designed for American retirees which are similar to the above mentioned Rancho Contento. In all instances, a 3 per cent

sample was strived for.





5Colony (colonia in Spanish) is similar to a ward in an American city.






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The list of households to be interviewed was prepared with the assistance of rembrslip lists of various organizations, the private filcs of the individual who assists the retirees to become inmigr antes and iniiigrados, and by the process of randomly selecting streets in the areas where Americanis were known to be living. Samples of the three retirement projects were taken so as to cover the entire area at the 3 per cent sampling rate.
















CHAPTER VI

ANALYSIS OF SURVEY RESULTS


While the primary purpose of this survey was to obtain data on the spending patterns of the American retiree in Jalisco, the opportunity to acquire knowledge about some of the socio-economic

characteristics of this population presented itself and, as can be seen by the questionnaire in the Appendix, the majority of the questions was designed to furnish the additional information. It is hoped that these additional data may be useful to social scientists and marketers who are interested in learning more about this import-ant group of people.

The data obtained from questions one and two were mentioned in Chapter V, but are shown in Table 8, which follows, to present a complete analysis of all data in this chapter.

The age distribution of the respondents is given in Table 10.

Table 11 sho,:s the number of married households interviewed which were composed of two or more persons. It may be noted that 79.1 per cent of the total households interviewed consisted of married persons with two or more people per household, while one

person households accounted for 20.9 per cent of all households interviewed.


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TABLE 8

INDIVIDUALS PER RETIREE HOUSEHOLD FROM SAMPLE Number of Individuals Percentage People per of MIarried Residence Households Married Single Represented Household Households
(1) (2) (3) (4) (5) (6) (7) Guadalajara 202 143 59 358 1.77 71.0 Rest of Jalisco 61 50 11 115 1.89 82.0

Total 263 193 70 473 1.8 73.4

Note: The value for column 6, "Individuals per Household," was obtained by dividing values in column 5 by those of column 2.


TABLE 9

SEX OF RETIREE RESPONDENTS


Percentage of
All Respondents Percentage Residence Male Female Total Male Female Total Guadalajara 184 174 358 51.4 48.6 100.0 Rest of Jalisco 56 59 115 48.7 51.3 100.0

a b
Total 240 233 473 50.7 49.3 100.0

a, b
These percentages were calculated for total number of men and women in sample.








TABLE 10


AGE DISTRIBUTION OF RETIREE RESPONDENTS


Age Group


Number of Respondents


Percentage of Total Resvondents


44 and under 45-49 50-54 55-59 60-64 65-69
70-74 75 and over
Total


3.6 5.3 7.6
18.2 17.8
35.5 9.7
2.3
100.0


TABLE 11

NUMBER OF PERSONS PER MARRIED RETIREE HOUSEHOLD Households Percentage Households Percentage Households with Percentage wit two of all with Three of all Four or of Residence Peoole Households Peoole Households More Peonle Household

Guadalajara 135 51.3 9 3.4 2 0.8 Rest of Jalisco 58 22.1 4 1.5 0 0.0

Total 193 73.4 13 4.9 2 0.8











Question three provided inforimatiLon concecrning the cduca tion of the respondents. An overwhelming majority had had some college training and 64 per cent of all, respondents stated that they had received a bachelor's degree or highei. Table 12 indifcates this dis tribution.



TABLE 12

YEARS OF SCHOOL COMPLETED BY RETIREE RESPONDENTS

Percentage Cumulative
Last Year Number of of Total Percentage Completed Respondents Respondents Dis tribut ion

20 27 10.3 -19 1 0.4 10.7 18 12 4.6 15.3 17 12 4.6 19.9 16 116 44.1 64.0 15 1 .4 64.4 14 24 9.1 73.5 -3 4 1.5 75.0 12 (High school) 45 17.1 92.1 11 3 1.3 93.2 10 6 2.2 95.4 9 1 0.4 95.8 8 (Grade school) 10 3.8 99.6 7 1 0.4 100.0

Total 263 100.0


-75-.







-76-


The following breakdown) indiCates those respondents hlo had some college training, soce high school, or some grade school educati on.



TABLE 13

AMOUNT OF EDUCATION OF RETIREE RESPONDENTS

Percentage
Number of of Total
Amount of Education _____ Respondents PondoRespodents Some college 197 74.9 Some High school 54 20.5 Grade school only 12 4.6

Total 263 100.0




The replies to questions four and seven were analyzed to

ascertain what year the respondent had arrived in Mexico. Table 14 shows that 225 of the 263 respondents (85.6 per cent) have come to Mexico since 1960.

The states of California and Texas were the states from which 134 respondents had retired. This is 51 per cent of the total number of respondents.

The respondents were not queried --s to whether they had visited Mexico as tourists previous to retiring nor were they specifically asked if the distance from their last place of residence in the United States had any influence in their choosing Mexico for retirement. No respondent mentioned distance as a reason for choosing Mexico in answer to question eight. Po, ever, the iimmediate






-7/-


TABLE 14

YEAR IN . C T IR: RIL ELSP)I ',Jt1S RIR'[) . 1. .. X.CO

Per cent :ge Cumul a 1ivye
Year Number of of all Percentage Retired R eI se ndeniLs Respo1odc2Ls Dis tri bu ion

1.970 8 3.0

1969 58 22.1 25.1 1968 43 16.3 41.4 1967 16 6.] 47.5 1966 38 14.4 61.9 1965 12 4.6 66.5 1964 13 4.9 71.4

1963 24 9.1 80.5 1962 13 4.9 85.4

1960 11 4.2 89.6 1959 7 2.7 92.3 1958 10 3.8 96.1 1.955 5 1.9 98.0

1952 4 1.5 99.5

1-933 1 0.4 99.9a

a
Percentages do not add up to 100 per cent because of rounding off.



border states plus the states contiguous to the border states accounted for 147 respondents or 55.9 per cent of the total number of households in the sample. The fact that there is a large concentration of Mexican residents in Chicago may have caused the






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TABLE 15

STATE FROM WHICH RETIREE RESPONDENT RETIRED TO MEXICO

Percentage
Number of of Total
State Respondents Sample

California 99 37.6 Texas 36 13.7 Illinois 29 11.0 New York 15 5.7 Washington 10 3.8 New Jersey 10 3.8 Florida 10 3.8 1Ohio 6 2.3 Mississippi 6 2.3 Indiana 6 2.3 Massachusetts 5 1.9 Penns lyvania 5 1.9 Oklahoma 4 1.5 Louisiana 4 1.5 Colorado 4 1.5 Oregon 4 1.5 Iowa 4 1.5 Virginia 2 0.8 Washington,D. C. 2 0.8 Michigan 1 0.4


retirees from Illinois to be more aware of Mexico.

The answers to question six concerning the last job held before retiring were not surprising in view of the large percentage of residents which indicated that they had attended college. Nearly all of the positions (perhaps as much as 85 per cent) shown in Table 16 could require a college education in this year, although perhaps not at the time that some of the retirees were employed.






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TABLE 16

LAST JOB HELD BY RETIREE RESPONDENT BEFORE RETIRING

Number of Percentage
Job Respondents of Total Profess ional 91 34.6 Executive 73 27.8 Military 28 10.6 Educator 24 9.1 Government 16 6.1 Skilled Worker 15 5.7 Housewife 8 3.0 Unskilled Labor 6 2.3 Handicapped 2 0.8


The majority of the retirees interviewed had retired directly to Mexico, although 79 respondents (30 per cent) had retired elsewhere before coming to Mexico. Most of these 79 respondents have come in the last decade, as may be seen from Table 17.

It is a popular belief that Americans choose Jalisco for

retirement for two reasons--climate and the lower cost of living. Officials at the American consulate, for example, state only these two reasons and seem to give them equal weight. Writers of popular books generally do the same. However, the answers given to question eight which asked why the respondent chose Jalisco revealed that






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TABLE 17

YEAR PREVIOUSLY R-fi ]Ki9) RESPONDEN] S ABRIED IN MEXICO


Year Number of Respondents

1970 6 1969 24 1968 12 1967 14 1966 9 1965 6 1963 2 1962 5 1959 1




these two reasons are not rated by the retiree as being equally important and, further, that there are other important reasons why American retirees choose Jalisco. Any other country contemplating attracting American retirees may find Table 18 of interest.

Question nine required the respondent to state his yearly

income within rather narrow limits. Table 19 shows this distribution for the 263 respondents. Nearly half (44.9 per cent) of the respondents had yearly incomes of $8,000 or more and 60.5 per cent of all respondents received an annual income of $6,000 or more.

The facL that 11.4 per cent of those interviewed declared their yearly income to be under $4,000 wav, in part, account for a large number of the permanent Aerican residents of Jalisco who







-8]-


TABJ 18

REASONS FOI C11OOS]NG JA .ISCO BY RETIREE RESPONDENTS

Percentage Percentage
Number of of of Total Responses Respondents Answers Reason Given (1) (2) (3) Climate 188 71.5 63.3 Cost of Living 57 21.7 16.1 Friend's Recommendation 31 11.8 8.8 Liked Mexican People 25 9.5 7.1 Cultural Activities 17 6.5 4.8 Beauty and Scenery 16 6.1 4.5 Favorite Spot After Visit 14 5.3 4.0 Doctor's Recommendation 3 1.] 0.8 Like American Colony 2 0.8 0.6

Total 353 100.0

Note: Values in column 2 were calculated by dividing values in column 1 by the 263 respondents. The total of column 2 exceeds 100 per cent because respondents gave multiple answers.



remain in the tourist category. It was stated in Chapter IV that

to enter Mexico as an jmiigrante-reotJsta, a married couple must prove that it has a gUaranteed monthly income of $320. This is $3,840 on a yearly basis and is very close to the upper limit in the range of under $4,000.

If it is assumed that 11 per cent of the total American retiree population receives less than the legal minimum, and this percentage is applied to the estimated total retiree household







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TABLEj 19

YEARLY I NCOE 0F RETIRI'E RIESPONDENTS

Percentage Percentage
Number of of Total Cumulative Income Range Respond ents Respondcents Distribution

under $4,000 30 11.4 --$4,000 - $6,000 74 28.1 39.5 $6,000 - $8,000 41 15.6 55.1 $8,000 - $10,000 37 14.1 69.2 $10,000 - $16,000 41 15.6 84.8 $16,000 - $20,000 33 12.5 97.3 $20,000 and over 7 2.7 100.0

Total 263 100.0




population of 7,222, as shoi:n in Table 7, then there are approxi-mately 800 households whose members cannot become inmigranterentistas because they cannot meet the financial requirements. Assuming that the 1.8 persons per household found in the sample is representative of the total population, there are then approximately 1,500 Am2ricans retirees living in Jalisco who cannot ever

become indgrante-rentistas. This could account for 50 per cent of the estimated 3,000 permanent residents who are officially tourists.

It was found that the retirees in the lower income groups were not the only respondents who give the cost of living as a reason for being attracted to Jalisco. As could be expected, the greatest percentage of those who gave this as a reason came from











the income group of $4,000 or less, but, as 'able 20 indicates, retire.s in much hi gher i1cos Ce groups also were attracted by what they felt were Io, cr living costs in Jal-isco.



TABLE 20

DISTRIBUTION ACCORDING TO INCOME OF RETIREE RESPONDENTS
WHO GAVE COST OF LIVING AS A REASON FOR CHOOSING JALISCO

Percentage of
Number of Number in Total in
Respondents Group WTho Gave Group Wimo Cave Income Group in This Group This as Reason This Reason
(1) (2) (3) (4)

$4,000 or less 30 16 53.3 $4,000 - $6,000 74 8 10.8 $6,000 - $8,000 41 14 34.1 $8,000- $10,000 37 13 35.0 $10,000- $16,000 41 4 9.8 $16,000 - $20,000 33 2 6.1

Note: Percentage in coluniu 4 was obtained by dividing value in col~upn 3 by value in column 4.



The majority of respondeuLs receive income from more than one source. Social Security payments are received by 145 out of the 263 respondents which amounted to 55.1 per cent of the sample. The Social Security officer for the State of Jalisco stated that 4,733 checks totallirg $51S,000 were sent out from the American consulate for the month of June, 1970. These payments were for Social Security, veterans' benefits, railroad retirement benefits,


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and miscellaneous benefits paid by the United States federal government. Table 21 illustrates the distribution of these payments.




TABLE 21

RETIREMENT PAYMENTS PAID OUT BY AMERICAN
CONSULATE FOR THE MONTH OF JUNE, 1.970

Number of Amount in Average Type of Benefit Checks Dollars Payment Social Security 3,987 $399,511.74 $100.20 Veteran's Benefits 342 58,721.84 171.70 Railroad Retirement 254 31,877.25 125.50 Miscellaneous 49 9,924.17 202.53

Total 4,733 $518,475.86 $109.54




The Social Security officer estimated that about 35 per cent of the total amount paid or approximately $182,000 monthly was being paid to Americans living in Jalisco. However, he believes that at least another $200,000 per month is deposited to retirees' accounts in the United States so that all such payments to American retirees living in Jalisco amount to about $400,000 monthly. The total payments made in Jalisco have doubled approximately since 1967. In January of that year, the amount paid out totalled only $279,606 as compared to the $518,475.86 disbursed in June, 1970.1



1
Personal interview with Mr. J. D. Hamblet of the American Consulate in Guadalajara on August 4, 1970.






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Over 55 per cent of the respondcnts indicated Social Security as one of their income sources, but, as can be seen froit Table 22, dividends from stoc. and ji t eve.,t from bonds were mentioned almost as often 50.2 per cent of all respondents.


TABLE 22

RETIREE RESPONDENTS' SOURCES OF INCOME

Percentage Percentage
Number of of all of all Source of Income Respondents Respondents Responses
(2) (3) (4) Social Security 145 55.2 22.6 Dividends and Interest
from Stocks and Bonds 132 50.2 20.6 Interest from Savings 92 34.6 14.2 Company Pensions 64 24.3 10.0 Government Pensions 57 21.7 8.9 Income from Real Estate 54 20.5 8.4 Savings 53 20.1 8.3 Income from Business 26 9.9 4.0 In U.S. 18 6.8 2.8 Railroad Pension 1 0.4 0.2

Total 641 ___ a 100.0

aPercentages do not add up to 100 per cent because many respondents gave multiple answers.
Note: Values for column 3 were calculated by dividing those of column 2 by 263.
Values for column 4 were calculated by dividing those of column 2 by 641, the total of all responses.






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Question cleven was cuIcerncd with the monthly expenditures of the respondents. Of the 263 households interviewed, 145 (55.1 per cent of the total) were- renting house:; and 118 owned their own homes.

Average (arithmetic wean) monthly expenditures were $443.60 for those who rented houses and $380.80 for homeowners. Many respondents had no miaid, no gardner, and no medical or dental expense. There is a notable deficit of telephones in Mexico and only 27.8 per cent of the households sampled had them. Only slightly more than half of those interviewed (51.3 per cent) purchased clothing in Mexico and answers to question seventeen revealed that 84.1 per cent of those who go to the United States to make purchase do purchase clothing. As there were 135 people who stated they bought clothing in Mexico and 138 respondents who go to the United States to purchase clothing, it is evident that very few of those sawpl ed buy in both places.

Although respondents were not requested to tell why they do not purchase clothing in Mexico, there were comments made about Mexican clothing such as poor fit, poor styling, and being higher priced than American clothing. A check of prices in a number of stores in Guadalajara did not indicate any appreciable difference

between Mexican prices and regular American prices for the same article. Good quaiJ]ty Mexican shoes, for example, were priced at from one-third to one-half of the price for comparable American shoes. There is a marked difference in prices, however, when Mexican prices are compared to American special post-seasonal sale







-87-


prices. The tendency to reduce prices for special sales is much less in Mexico than in thy United States-. due, possibly in part at least, to the fact that there is, on the average , a smaller tempera ture change among the four seasons in Mexico with the result that
2
much the same clothing is ivorn the year round there.

Some respondents remarked that thcy did time their trips to the United States to coincide wiLh the post-seasonal salcs and this may be the reason why some retirees feel that American clothing is less expensive than Mexican clothing when the aforementioned examination of prices failed to reveal any large price differential between

them.

To calculate the average expenditures in Mexico of an American retiree household for all ite.mis listed in the questionnaire, all responses were first totalled. An average was obtained for the number of respondents who had made these expenditures and another average was calculated for all 263 respondents. The values obtained in the latter calculation were then added to the expenditures common to all

respondents. To these amounts were added rent to obtain the total expenditure for retirees renting houses or property taxes, water,

and household maintenance expenses to obtain the average expenditures for homeowners. Finally, the average expenditures for both renters

and horieowners were weighted according to the number of respondents in each category and then combined to arrive at an average monthly



2
See Chapter III for information on year round temperatures.











expenditures for all retirees. Thesc values are presented in

Tables 23 to 27.

TABLE 23

EXPEND)TURES COXfON TO ALL RE'IREE RJSPONDENTS


Tyjpe of Exjrenditure Amount Paid per Month

Food $120.10 Entertainment 49.70 Gasoline 21.60 Car Maintenance 11.60 Electricity 7.40 Gas 5.00 Others 55.00

Total $271.00




TABLE 24

a
EXPENDITURES NOT CO:P4ON TO ALL RETIREE RESPONDETSa


Average
per
Percentage Respondent Average Type of Number of of all Making for all Expnd! ture Respondc .nts Respoi-,ICets _Expenditures Resondents
(1) (2) (3) (4) (5)

Maid 187 71.1 $29.90 $21.26 Gardner 151 57.4 20.80 11.94 Mexican Clothing 135 51.3 17.60 9.03 Medical Expn.b 208 79.1 16.40 1.2.97 Dental Expn. 149 56.7 5.30 3.00

Total $58.20

aRent, property tax, household repairs, and charges for water are not included.
bpospital expense and doctors' bills are combined because it proved difficult for respondents to separate them.
Note: Percentage in coluan 3 was calculated by dividing the


--88-







-89-


number of respondcnts in col.uvn 2 by 263 respondents.
Average expclditure i f column 4 O w 0i)e obtained by d-ividing total expenditures by the ru ber of respoadents noted in column 2.
Average expcnditurc,s ifr all. respon10Vnts in col um a 5 v'ere
calculated by div 1ding total expcnditures by 263, the total number of respondents.




TABLE 25

EXPENDITURES ON HOUSING BY RETIREE RESPONDENTS

Average
per
Percentage Respondent
Type of Number of of Total Making
Expenditure Respondents Respondents Expenditures
(1) (2) (3) (4)

Rent 145 55.1 $94.00 Housing Maintenance 118 44.9 21.70 Property Tax 118 44.9 9.50 Water 118 44.9 2.10







TABLE 26

MEXICAN EXPENDITURES OF PFlT.]E'E RESPONDENTS RENTING HOUSES



Expenditures Average Amount Total from Table 23 $271.00 Total from column 5 of Table 24 58.20 Rent from column 4 of Table 25 94.00

Total $423.20




Full Text

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THE ECONOMIC IMPACT OF THE AI4ERICAN RETIREE IN JALISCO, MEXICO ON THE MEXICAN ECONOMY By DONALD ALTON BALL A DISSERTATION PRESENTED TO THE GRADUATE COUNCIL OF THE UNIVERSITY OF FLORIDA IN PARTIAL FULl^ILUiENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPLT UNIVERSITT OF FLORIDA 1971

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Copyright by Donald Alton Ball 1971

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ACKNOWLEDGMENTS The writer wishes to express his sincere appreciation to Dr. R. W, Bradbury, Dr. R. H. Blodgett, Dr. C. W. Fristoe, and Dr. A. A. Anderson fo r their comments and suggestions during the preparation of the manuscript. Special recognition is due to Mr. Pedro Donde and Mr. Armando Basurto, economists with the Banco de Mexico, S. A. In addition, the assistance of Mr. Gary Hannes of radio station IN and that of Mr. R. ITiurston and Mr. R. Snodgrass of the newspaper, Colony Reporter of Guadalajara , must be cited. Without their help, the data would never have been obtained. Finally, he wishes to express his gratitude to his wife, Victoria, and his children, for the many sacrifices made and the encouragement provided throughout the course of his graduate study. iii

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TABLE OF CONTENTS Chapter p^ge ACKNOWLEDGMENTS iii LIST OF TABLES ^ LIST OF FIGURES viii ABSTRACT ix I INTRODUCTION i II TOURISM IN THE THEORY OF ECONOMIC DEVELOPMENT 3 III JALISCO ~ ECONOMIC AND DEMOGRAPHIC DATA 37 IV LEGAL AND FINANCIAL REQUIREMENTS FOR RETIREES 50 V RESEARCH PROCEDURE gi VI ANALYSIS OF SURVEY RESULTS 72 VII APPLICATION OF SURVEY RESULTS TO THE TOTAL POPULATION VIII MEXICAN INVESTMENTS OF Al^IERICAN RETIREES 125 IX THE ECONOMIC IMPACT OF THE RETIREES' PRIMARY EXPENDITURES ]_29 X CONCLUSIONS j_3g APPENDICES j_29 Appendix A j_^q Appendix B 242 Appendix C j_44 Appendix D ^45 BIBLIOGRAPHY ^48 BIOGRAPHICAL SKETCH , co Iv

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LIST OF TABLES Tabic Page 1 High and Lov; Tempera tui'cs for Guadalajara and Selected Cities 39 2 Gross Product for State of Jalisco 1960, 1967, 1969 41 . 3 Principal Crops for 1969 42 4 Growth Indicators of the Educational System, 1965-1968 44 5 Jalisco: Principal Industrial Indicators, 1960, 1969 45 6 Calculation of Number of Retiree Households to Establish Sample Size 68 7 Recalculation of the Number of Retiree Households to Establish Sample Si^e Using Values Obtained in Survey 69 8 Individuals per Retiree Household from Sample 73 9 Sex of Retiree Respondents 73 10 Age Distribution of Retiree Respondents 74 11 Number of Persons per Married Retiree Household 74 12 Years of School Completed by Retiree Respondents 75 13 Amount of Education of Retiree Respondents 76 14 Year in Miich Retiree Respondents Retired to Mexico 77 15 State from Ivliich Retiree Respondent Retired to Mexico 78 16 Last Job Held by Retiree Respondent Before Retiring 79 V

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LIST OF TABLES (contirmad) Table Page 17 Year Priiviously RcLirecl Respondents Arrived in Mexico 80 18 Reasons for Choosing Jalisco by Retiree Respondents 81 19 Yearly Income of Retiree Respondents 82 20 Distribution According to Income of Retiree Respondents Wlio Gave Cost of Living as a Reason for Choosing Jalisco 83 21 Retirement Payments Paid Out by American Consulate for the Month of June, 1970 84 22 Retiree Respondents' Sources of Income 85 23 Expenditures Common to all Retiree Respondents 88 24 Expenditures Not Common to all Retiree Respondents 88 25 Expenditures on Housing by Retiree Respondents 89 26 Mexican Expenditures of Retiree Respondents Renting Houses 89 27 Mexican Expenditures of Retiree Homeovmers 90 28 Activities of American Retirees in Jalisco 91 29 Frequency of Movie Attendance by Retiree Respondents 92 30 Church Affiliation of Retiree Respondents 92 31 Frequency of Church Attendance by Retiree Respondents 93 32 Retirees' Medical Data for 1969 95 33 Retiree Respondents who had Visitors in 1969 96 vi

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LIST OF TABLES (continued) Table Page 34 Data on Where Visitors of Retiree Respondents Stayed 97 35 Visitor Days per Retiree Respondent 98 36 Average Length of Visit of Retiree Respondents' Visitors 99 37 What Retirees Miss Most from the United States 100 38 Articles Purchased in the United States by Retiree Respondents 102 39 What Retirees Like Most About Mexico 103 40 Comparison of Reasons for Choosing Jalisco with What Retirees Like About Jalisco After Living There 105 41 What Retirees Dislike About Mexico 107 42 Reasons Given by Retiree Respondents for Not Becoming Inmigrado 108 43 Total Primary Expenditures in 1969 for Which American Retirees in Jalisco are Responsible 123 44 Multiplier Effect of Retiree Expenditures on Value Added 131 45 Multipliers for TouristsExpenditures on Value Added 132 46 Short Term Economic Impact of Retirees' Expenditures 135 47 Long Term Economic Impact of Retirees' Expenditures 135 vii

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LIST OF FIGURES Page Figure 1. Mexico 38 Figure 2. Jalisco and its five economic regions including the central region 48 Figure 3. Flow diagram of the long term multiplier effects of an increase of $1,000 in the demand by tourists for goods and services 134 viii

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AbsLracL of Dissertation Pnu^ented Lo the Graduate Council of the University of Florida in Partial Fulfillment of tlie Requi reincnts for the Decree of Doctor of Philosophy THE ECONOMIC IMPACT OF THE AI'ffiRICAN RETIREE IN JALISCO, MEXICO ON THE MEXICAN ECONOMY By Donald Alton Ball June, 19 71 Chalnnan: Dr. R. W. Bradbury Major Department: Economics A survey of the current literature on the economic development of lesser developed countries has revealed that the authors usually recommend either that these countries industrialize and/or that they concentrate on improving the state of their agriculture. Little, if any, attention has been paid to the benefits to be obtained from exporting goods and services by means of the tourism and travel industry, or of an even lesser known allied industry-that of providing for permanent foreign retirees. The object of this study is an attempt to measure the economic Impact which the American retirees living in the state of Jalisco, Mexico, make on the economy of Mexico. Because of the impossibility of obtaining a complete listing of all American retirees in Jalisco from which to prepare an unrestricted random sample, it was necessary to resort to a directed type of area sampling. A total of 263 households were interviewed which represented 3.5A per cent of the total population. Information vv-as obtained not only about expenditures, but also of various ix

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socio-economic characteristics of this important group of people. When the results of the survey were applied to the total population, it was estimated that the American retirees in Jaliso spend approximately $35 million annually on recurring expenditures. In addition, they probably spent another $11 million on non-recurring expenditures for a total of almost $46 million in 1969. However, the American retirees made a still larger contribution as they were primarily responsible for the fact that 47,700 foreign tourists visited Mexico who probably spent an additional $7 million 7 hundred in 1969. It was found that the Mexican law requires retirees to have a guaranteed monthly income from sources outside of Mexico of at least $320 per couple. If a retiree couple does not receive this minimum per month, they may still qualify for entrance into Mexico by in vesting in government-approved investments within the country. The income received from these investments must still equal the minimum required by law, however. To measure the economic impact on the Mexican economy, short term (one year) multipliers of 3.18 and 2.98 and longer term multipliers (periods of more than two years) of 7.13 and 6.55 were applied to the retirees' and their visitors' expenditures, respectively. On this basis, the short term economic impact of the American retirees in Jalisco must have amounted to approximately $16 million, as a result of their expenditures in 1969, whereas the long term impact may be as much as $377 million.

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It is hoped that this and other studies will assist in pointing out to the lesser developed countries that there is another alternative worthy of consideration when plans for economic development are being formulated. xi

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CHAPTER I INTRODUCTION Although a considerable body of v^riLing concerning the economic impact of tourism on the economies of the lesser developed nations exists, as far as the writer has been able to ascertain, no studies have been made of the importance of foreign retirees to the economy of a nation. This may be due to the fact that retirement in a foreigii country on a large scale is a phenomenon of recent origin. As far as is known, Mexico is the only nation to this date which has had an important influx of foreign retirees. The business of providing goods and services to these people is closely linked to the tourism and travel Indus ti"y in that it not only complements tourism since retirees are attracted to a country for many of the reasons that tourists arc, but it also actively assists in the growth of tourism as will be demonstrated later. For these reasons, it is felt that the sale of goods and services to foreign retirees may be considered a subdivision of the tourism and travel industry. V/ith these considerations in mind, the following hypothesis i s proposed : The sale of goods and services to ttic foreign retirees in the State of Jalisco makes an important and meaningful contribution to the economv of Mexico.

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V.' -2The objfct of this study, therefore, is to attempt to measure the economic impact of the American retiree in the State of Jalisco on the economy of Mexico. This state v;as singled out for study because here there is a greater concentration of foreign retirees than there is in any other state of Mexico. American retirees were chosen for study because the vast majority of retirees in Mexico are Americans, although there are a fe\
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CHAPTER ITTOURISM IN THE THEORY OF ECONOMIC DEVELOH-IENT Although underdeveloped nations always have existed, it was only after World War II that emphasis v/as given to the study of the secular prospects and problems of underdeveloped countries and to the means for resolving these problems. Various definitions of what an underdeveloped nation is have been offered, but the definition proposed by Professor Kuznets is preferred by the writer. He defines underdeveloped countries as those "that have been unable to utilize the opportunities afforded by modern material and social technology and have failed to supply minimum subsistance and material comfort to their populations.""^ Among the many reasons given to explain the recent upsurge in the emphasis on economic growth are the following: 1. One result of World War II V7as the liberation of people from colonial rule. This created many more poor nations v;hose people are demanding equality of opportunity as well as liber ty-national independence alone is insufficient; they also want economic develop2 Bient . 1 Samuel Kuzncts, Economic Grow th and Structure (New York: W. W. Norton & Company, €966), p. 2. 2 Gunnar Myrda] , Rich Land s and Poo r Lands (New York: Harper and Brothers, ]Q5 7)-3-

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-42. The tremendous progress achieved in the field of communications has permitted the people of the underdeveloped nations to see and thus compare their levels of living with those of the more developed nations. 3. Improvements in data collection have permitted their political leaders to make direct comparisons of such indicators as national income per capita, consumption per capita, percentage 3 increase in capital formation and many others. 4. The establishment after World War II of various international organizations such as the United Nations, International Monetary Fund, World Bank, and others has provided international forums where the underdeveloped nations may voice their demands . 5. The increasingly close international ties mentioned above suggest that "the lack of freedom from want in some countries with the attendant political and social perturbations may well mean lack of freedom from fear in others that are 4 economically more advanced." This means that 3t For a discussion of the appropriations of the use of these various indicators, see Jadish Bhagwati, The Economics of Underde veloped Countries (New York: McGraw-Hill Book Company, 1966), pp. 12^2. ^Kuznets, p. 3.

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-5the exLrfincly low levels of living of many of the underdeveloped countries is luiderstood by tlie more developed countries to be a threat to their own s ecuri ty . 6. The developed countries have come to feel that the misery and poverty prevalent in many of the underdeve lo[ied nations is unjust and morally vr/rong. In fact, Gunnar Myrdal V7rites that "the use of the concept 'the underdeveloped countries' implies the value of judgment that it is an accepted goal of public policy that the countries so designated should experience economic dcvelopment." 7. Probably the most important reason of all for the recent interest in economic grov;th is the presence of Russia representing a different social organization, the authoritarian state, which professes to be able to handle long term economic problems much more efficiently than the democratic developed countries can.^ As the interest in underdeveloped countries gained momentum, an increasing number of social scientists, including economists, began to study the various problems related to the economic 'Gunnar Myrdal, R3\ch_ Lan^s_a2ijd J^oc^ o p.cit. , p. 8. Kuznets, p. 3.

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development: of the lovv'or iiiconic countries. The primary problem, of coarse, is to allocate the scarce resources in such a way as to obtain raaxinuim economic gro\-;th--a task for which the economist is admirably equipped. Speaking of the allocation of resources, Professor Hagen writes : Allocation among sectors is usually thought of as referring primarily to choice between agriculture and manufacturing. But this issue cannot be separated from foreign trade policy, for a decision of a country to become more self-sufficient usually requires an increase in domestic manufacturing; and, on the other hand, if the volume of exports of the lowest income countries is to be expanded, the added exports must be agricultural or other primary products. At a later stage of development, export expansion may be the export of manufactured products. At an early stage, the choice between autarchy and free trade is one between fostering the growth of manufacturing and concentration on primary production. At a later stage, the choice is between self-sufficiency and specialization within manufacturing.^ A survey of the literature on the economic development of the underdeveloped nations indicates that Professor Hagen 's view seems to represent the consensus of opinion of most contemporary theorists that is, the LDCs are told to industrialize and increase the prog ductivity of agriculture. The other possibility of expanding their exports of "invisibles" through the tourism and travel industry remains unmcntioned. That industrialization does not include this industry is indicated by the definition of industrialization 7 Everett E. Hagen, Tho_^ Economics of Development (Homewood, Illinois: Richard D. Irwin, Inc., 1968) , p . ~441 . Q °LDCs Lesser Developed Countries.

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-7as st-a'ced by the Ecojiomic Cciiiniission for Latin America. "Industrialization is tlie proportion of the active male labor force engaged in manufacturing, construction, gas, and electricity" or, alternatively, as the "percentage of the total labor force working as salaried employees or V7age earners in manufacturing alone. "^ It is clear that the alternate or at least the additional possibility of developed services for export--the "invisibles" in a nation's international balance of payinent--is not brought up for consideration . Since the export of "invisibles" is an important factor in the economies of various countries such as Italy, Spain, the Scandinavian countries, and Mexico, for example, it would seem appropriate that they be included explicitly in any theory of economic development. That they are not may be attributable to the fact that traditionally interest has been centered in the exporting of the "visibles" perhaps because the "invisibles" for centuries have constituted such a very small item in the vast majority of the nations' balance of payments. In fact, it is only since the turn of the century that the tertiary sector, services, has come to have any importance in any nation's output. Perhaps more important is the explanation given by Professor J. L. Knipe who states that "the very concept of the export of 'invisibles' was not understood until recently . "''^^ UTnile it is not within the ^Benjamin lliggins , Econo aiic Development (New York: W. W. Norton and Company, 1968), p.'/;66. l^Dr. Knipe is Bank of North Carolina Professor of Banking at East Carolina University in Greenville, North Carolina, and formerly

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-8scope of this paper to investigate this hypothesis, it Vv/ould be interesting to speculate on the possibility that many nations have not given services the importance they merit because in the received theory v;hich those in charge of economic development have studied, no mention is made of their possible contribution to development . Of the various items which go to make up the "invisibles" the tourism and travel industry not only is growing rapidly but more importantly, it already occupies an eminent position in the 11 list of exports of many nations in various stages of development. It should be noted that in this study only travel for pleasure is considered, and is treated as if it were an. equivalent of a consumer good. Among the many factors contributing to its growth are the rapid increase in personal disposable incomes of the population of the developed world, improved communications, more leisure time, and the pressure of the population in the majority of the developed nations . was consultant during the Kennedy Administration to Mr. C. Martin, Chairman of the Federal Reserve Board. '"^"International tourism has become an export industry which is particularly important to the economy of certain European countries; in 1967, tourist receipts in foreign currency accounted for over 6% of GNP in Ireland, almost 6% in Austria and Portugal, over 4% in Spain and almost A% in Switzerland. It is also an industry which is expanding rapidly. For European member countries as a whole, tourist receipts in foreign currency increased by 179% between 1958 and 1967." See Tourism in OECD Member Countries in 1968 and the Early Month s of 1969 (Paris: The Organization for Economic Cooperation and Developmt-at , 1969), p. 7. For another example, "Since 1960, the nuuiber of foreigners visiting Mexico has jumped from 769,000 to more than 1.6 million in 196 7. Income from tourism for 1968 v/as more than 1 billion dollars. Tourism now is

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-9IWiile there can be little doubt that the tourism and travel industry has becaiic of increasing economic importance to a number of nations, for the purpose of economic analysis, is there any benefit to be derived from singling this industry out for special consideration over the automotive or glass industries, for example? The writer feels there is good reason for special consideration of this industry in the theory of economic development of the LDCs and will attempt to illustrate the advantages in so doing. As stated previously, consensus among most economists in both the developed and the LDCs is that the latter have only tv^70 choices — industrialize or continue to specialize in the production of primary 12 products. They further state that because of the income inelasticity of demand for primary products which is further accentuated by price inelasticity of demand and because of the invention of synthetic materials which displace primary products, there is really no alternative so that these countries mus t industrialize. Hov;evcr, industrialization requires the importation of capital equipment and to be able to purchase capital equipment, foreign exchange is necessary. But the foreign exchange required is Mexico's s ingle most impo rtant export item accounting for more foreign exchange than does cotton, coffee, or sugar." See John Chris.tman, "Mexico Pushes Massive Tourist Indus t ry , " Mexico /This Month, January, 1969. 12 See Raul Prebisch, "Conmiercial Policy in the Underdeveloped Countries," Ajiierica n Ec onomic Review, Papers and Proceedings , XLIX (May. 1959), pp. 251-273; and Hans W. Singer, "The Distribution of Gains Between Investing and Borrowing Countries," American Economic Review: Papers and Proceeding s, XL (May, 1950), pp. 473-485.

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-10normaJly great.er than that which can be provided by the exportation of primary products; tliat is, a foreign exchange gap exists. To clos this gap, many economists argue, the developed nations should extend import preferences to both the LDC ' s manufactured products and to their primary' products. This the developed countries are reluctant to do since the manufacturing industries in which the LDCs do have an opportunity to compete are commonly those which are labor intensive and are already considered by them to be depressed industries. As such, these industries have been protected by the developed countries for many years as have the agricultural products with which the LDCs production competes. To reduce their dependence on the traditional primary products for foreign exchange earnings and simultaneously to reduce the expenditure of scarce foreign exchange on consumer goods , the LDCs are told by many economists of both developed and underdeveloped countries that they must turn to manufacturing for diversification of exports and import substitution.''"^ But great difficulties have been imposed by the developed countries in denying them the inass markets they lack at home.''"^ Further, these new industries must be given both protection from imports and preference for their output in the developed countries since these new industries will be unable 13 John A. Pincus, "International Policies for Economic Development," Reshapin g the World E conomy, ed . by John A. Pincus (Englewood Cliffs, New Jersey: Prentice-Hall, Inc., 1968), pp. 8-9. ^Senjamin Higgins , p. 553. Also see Everett E. Hagen, p. 462. 15 John Pincus, p. ]1.

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-11to compete internationally for some time. This is a version of the infant industry argument. A further difficulty in the LDCs ' battle for economic development arises from the "demonstration effect" which leads the people in these nations to copy the consumption patterns of the developed 16 countries, thus reducing their will to save. This results in less savings being available for investment and, if such importation is permitted, increased spending on imported luxury items v;hich is a further drain on the supply of foreign exchange. At this point, it might be well to consider hov7, by explicitly including the tourist and travel industry in their development plans, the LDCs might be assisted to escape from the "vicious circle" in which they find themselves when they concentrate on manufacturing and agriculture. '• ' ' '" • •• The lack of sufficient foreign exchange is recognized to be a bottleneck in the development plans of most LDCs.'''' As demonstrated in footnote 11, p. 8, the tourism and travel industry has contributed greatly to ameliorate this problem for various countries and its contribution is increasing in importance . '^ As noted above, primary products are considered to possess income inelasticity of demand yet the demand faced by the tourism and travel industry is income elastic James Duosenberry, Income, Savin g and the Theory of Consumer Behavior (Cambridge: Harvard University Press, 1949), p. 27. ^^Hagen, p. 466. The average increase of tourist receipts for all LDCs was 18.87o for the period 1960-1966. From Banco de Mexico, S. A., "Los Efectos del Gasto de los Turistas Residcntes en el Exterior Sobrc • la Economia Mexicana " (Unpublished report, Mexico City, 1969), p. 2.

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-12i.e., the greater the income, the greater the tendency to travel. As disposable income rises, there is a greater demand for these services. Experience has sliov;n that travel, once a person possesses a surplus over his normal expenditures available to spend on the demand for services of the tourism and travel industry, is price inelastic over a substantially larger price range than is the demand usually faced by manufactured products. With few exceptions, the final product of the tourism and travel industry is purchased by non-professional buyers who are probably more strongly motivated by other factors in addition to price than are the professional buyers of imported primary 19 and manufactured goods. This and the fact that the products are extremely heterogeneous enable the sellers of these services to compete on other than a pure price basis--concretely for the underdeveloped countries, this means that there is an excellent opportunity for these countries to compete for trade even though there may be considerable differences in prices. For these reasons, the income elasticity of demand which works to the disadvantage of the LDCs as far as primary and manufactured products are concerned (being inelastic) is an important factor in the growth of the tourism and trade industry v;hile, the price inelasticity of demand for primary products does not appear to carry over to this industry. Although the infant industries producing manufactured goods often do have great difficulties in penetrating the markets of Guadalajara, Mexico, interviev.'s with various travel agents and airline executives, August, 1970.

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1 -13devclopod countries because of product inferiority and high costs, these difficulties arc normally not faced by producers in the tourism and travel industry. Not only is price less of a factor, but the lack of "quality" as measured by the standards in the developed countries often serves as an attraction for purchasers of this industry's services as witnessed by the flov,; of tourists to resorts with rather priivtitive accomodations, such as Puerto Vallarta, Bali, 20 and other "recently discovered" tourist centers. Further, the LDCs are not denied access to the mass tourism and travel market of the developed countries by protectionist devices as they are for primary and manufactured goods. Tariffs have not been applied to these services with one exception-several developed countries do place limitations on the value and sometimes quantity of the articles which the returning traveler may admit to the country duty-free. Theoretically, the possibility of discriminately taxing international air flights exists, but any attempts to do so would meet stiff opposition from the International Air Transport Association (I.A.T.A.) to which all international airlines but two belong. Since, in the vast majority of nations, these airlines are cither entirely or at least partially government-owned, any attempt at this type of discriminatio n would lead immediately to official government protests. "Paradise Lost? Bali Wonders," T he News and Observer (Raleigh, North Carolina), December 27, 1970, p. 8.

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-14Al though Lariffs arc generally inapplicable, the tourism and travel industry does lend itself to subsidies vhich are considered to be economically superior to tariffs. For example, the majority of the international airlines are either subsidised or, as in the case of many government-owned airlines, their operating deficits are absorbed by the national treasuries. Italy offers lower priced gasoline to tourists whereas France does not require merchants to charge the sales tax on articles purchased by foreign tourists. More favorable exchange rates are given to international tourists who visit a number of the Communist countries. Restrictive controls are applied to the importation of this industry's services as they are to the imports of primary' and manufactured goods. Nations with a lack of foreign exchange limit the amount which may be purchased by their nationals for purposes of travel and a special overvalued exchange rate is frequently charged them. To persuade its nationals to use the national airlines, India permits a national to purchase 100 U. S. dollars if passage has been booked on an Indian airline, but only 10 U. S. dollars if he is using a foreign line. In addition, governments of many countries require various documents before permission to leave the country is given. Ob tent ion of these documents is very frequently time-consuming because very fe\^^ government facilities are provided. Miile the underdeveloped countries are very adamant in their demands for preferences for their exports of primary and manufactured goods, they appear to have overlooked the advantages which might be obtained if they were to receive preferential treatment for their

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-15exports of goods and services of the tourism and travel industry. Example of such preferential treatment might be: 1. Developed countries with exchange controls could make more exchange available to travelers going to the LDCs . This practice is being followed in Chile, where more foreign exchange is sold to travelers going to other Latin American countries than is sold to those visiting the United States or other developed countries . 2. Developed countries could permit a greater quantity of souvenirs purchased in the LDCs to be admitted from the developed countries. 3. Developed countries could give tax rebates on profits earned by their hotel operators, tourist agencies, and other firms operating in the tourism and travel industry of the LDCs. Tax credit on investments made by these same firms in the LDCs could be extended. 4. The developed countries can provide personnel to make feasiblity studies for tourist projects in the LDCs . 5. Taxes on tourist bureaus operated by the LDCs in the developed countries could be eliminated.

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-166. The developed countries could eliminate airport landing fees for airplanes flying to the LDCs. Are the LDCs' prospects of obtaining preferences for the exporting of the tourist and travel industry's services any better than they have been for obtaining preferences for their primary and manufactured products? We have seen the tremendous difficulties in organizing international commodity agreements for the purpose of 21 stabilizing or increasing prices or incomes. It has been especially difficult to obtain an agreement in which the consumer countries participate. But, I.A.T.A, the international organization which does control very effectively not only prices of international transportation but also the amount of services offered aboard the airplanes, commission rates to travel agencies, entry into the travel agency industry, is a viable organization as well as a very effective monopoly in which all nations, both developed and underdeveloped, already participate. Thus, this could be the organization in which preferences for the LDCs might be agreed upon. Another factor of equal importance is the fact that there are no protectionist barriers to be dismantled in the developed countries in regard to the tourist and travel industry as there are for many Harry G. Johnson, Economic Policies Toward Less Developed Countries (New York: Frederick A. Praeger, 1967), pp. 136-140.

PAGE 28

primary and manufacLurcd products. Local pressure groups demanding protection for the national tourism and travel industry are certainly not as vociferous, if they do indeed exist, as are the groups representing depressed industries. Still some relatively weak protectionism does exist as vjitnesscd by the campaigns of various governments such as those of the United States and Mexico which exhort their nations to "see their countries first." Objections by labor organizations in the developed countries to investment in tourist facilities is nil probably because the growth of this Indus ti7 in LDCs does not imply any significant loss of jobs to workers in the developed countries. Professor Harry Johnson writes of another reason why the LDCs might have more success in obtaining preferences when he states; However, the opening of new trade opportunities for the less developed countries is still dependent on bargaining on the basis of reciprocity among developed countries--and therefore on the willingness of more than one major country to reduce barriers that impede the exports of the less developed countries. ^2 In the case of the tourist and travel industry, new opportunities for the export of its services are not subject to any appreciable trade barriers so that bargaining among the developed nations is not required. Likewise, there is no problem of obtaining equal preferences by developed countries as preferences for the exporting 22 Ibid., p. 132.

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-18of the Lourist and travel industry's services do not exist in any appreciable amount. Certainly there is little in the present rules governing international relations as embodied in GATT and the IMF charter which would prevent the products of the tourism and travel industry from being treated in the same manner that other imports arc presently handled. As shown previously, tariffs on foreign purchases made by travelers may be applied and quantitative restructions are also permissible when a nation is faced with balance of payments difficulties. The central argument for temporary preferences for the manufactured exports of the LDCs advanced at the United Nations Commission for Trade and Development (UNCTAD) was derived from infant industry considerations. Professor Harry G. Johnson feels that the argument as presented: is a dubious scheme politically because it would provide maximum incentives for the establishment in the less developed countries of the very developed-country industries that have in the past shown most political power to obtain protection from foreign competition. . , . The tariffpreference scheme is economically dubious because it provides maximum incentives for the establishment of the industries whose costs will have to fall most below those in the preference-giving countries if they are to survive the termination of the preferences. \vTiile the most heavily protected industries in the developed countries are likely to include those in which the less developed coLintries have a potential comparative advantage, it is very unlikely that they generally represent the best infant-industry prospects for the less developed countries. Ibid., p. 132.

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-19However, UNCTAD's argument v/hen applied to the tourism and tourist industry is not as dubious. In fact, past experience has shown that the tourist and travel industry can grow in various underdeveloped countries with no preferences having been extended by the developed countries. Certainly it is not an industry which has had great protection in the developed countries from imports. As shown previously, the tourism and travel industry is not as subject to the amount of price competition as are the primary and manufactured goods industries so that to survive after the termination of preferences, this industry's costs would not necessarily have to fall below those in the preference-giving countries. The tourist and travel industry appears to be one to which not only UNCTAD's argument would apply but also to which the pure infant industry argument would apply as well. It would appear then, that this industry in the LDCs can be the recipient of preferences extended by the developed countries and is not subject to the disadvantages described by Professor Johnson. Much has been written to the effect that the demonstration effect is an obstacle to development.^'^ Since this effect is most prevalent in regions where the tourist and travel industry is of Importance and thus might cause some planners of economic development Ragner Nurkse, "Some International Aspects of the Problem of Economic Development," in The Economics of Underdevelopment , ed. by A. N. Agarwala and S, P.Singh (London, Oxford, New York: Oxford University Press, 1963), p. 267. See also Celso Furtado, "Capital Formation and Economic Development," ibid., p. 328, and M. Bronfenbrenner, "The Appeal of Confiscation in Economic Development," ibid p. 484.

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-20to look dis favorably on this industry as a means for economic growth, the advantages to be derived from the demonstration effect and the closely connected emulations effect should be brought out. As a result of exposure to tourists and travelers, changes in 25 both production and consumption of goods and services may occur. Tourists and travelers may bring products with them which are seen by local residents. Knowledge of services and products heretofore unknown in the region may also come from demands by tourists and travelers for the services and products which they do not encounter locally, but are accustomed to having. Either one of these factors may lead to local production. There may already exist in the region a small demand for goods and services as a result of local residents having traveled to foreign countries, but their demand alone may have been too small to justify local production. However, the influx of tourists may increase the demand to the point where local production will be economically feasible. As a result of this external economy from tourism, not only may local residents be able to consume an increased number of goods and services at reasonable prices, but also new investment opportunities may be created which will attract foreign and local capital. Emulation has also accounted for increased production. Auto rent agencies, motels, restaurants established by foreign owners have soon been imitated by local entrepreneurs. The net result is often increased employment opportunities for those who were previously unemployed. W. W. Goldsmith, The Impact of the Tourism and Travel Indus tryon a Developing Regional Economy: The Puerto Rican Case (Ithaca: Department of City and Regional Planning, Cornell University, Sept., 1968), p. 13.

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-21In fact, one of the greatest attractions of the tourist and travel industry for the economic planners who are aware of the contrib utions to economic development which this industry can make is that it requires a lesser amount of highly trained people and a general or labor force v^itli a lower level of education than doss manufacturing. This results in a lov/er social cost per worker employed in this industry than it does for those employed in manufacturing. Equally important is the fact that a lack of highly trained laborers in a LUC is not likely to keep prospective foreign tourist investment from coming in as it may do in the case of manufacturing and, further, many of the skills required are already known since, even in the most retarded nations, there are hotels, restaurants, taxis, barbers, and other services required by the tourism and travel industry. Even loans from international agencies may be easier to obtain for tourism and travel than for manufacturing as one of the considerations for a loan is whether the technical and management skills are available to handle the project once it is completed. Since, for tourism and travel, there are people already possessing these skills or there are workers available to whom the relatively easily learned skills can be taught rapidly, this is not likely to be a major deterrent to receiving a loan. Not only is the tourism and travel industry a labor intensive industry, but, in addition, the major part of the capital equipment required is produced locally in many of the lesser developed countries 26 Banco dc ^k>.xlco S. A., p. 16.

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-22In Mexico, which, admittedly, is one of the more highly developed of the LDCs , official estimates are that, of each 100 dollars spent by tourists, only 3.7 dollars of imported goods directly and indirectly . . 27 are required. Some substitution of more labor intensive methods for processes normally requiring more capital in the developed countries may be made in the LDCs without seriously affecting the service such as the use of hand labor for washing dishes, hand ironing, and simple office machines, for example. In many instances, the tourist may not want the latest technical developments available in the developed countries when he is vacationing; that is, he will prefer to buy a tailor made suit or hand-made shoes, and will want to avail himself of personal services which have all but disappeared in the developed countries. It v;ould appear that here we have an exception to Professor Higgin's statement: Underdeveloped countries can not afford labor intensive techniques in the sense of low capitallabor ratios, because they are too expensive in terms of capital-they have high capital-output ratios .28 The tourism and travel industry is a welcome exception to this statement. It is recognized by most writers that private foreign investment is a necessary but not sufficient condition for accelerating economic growth. Yet foreign investors have been reluctant to invest in many of the LDCs in other than the traditional primary industries because of the smallness of the domestic market and the difficulty ^^Ibid. , p. 3. . 28 Higgins, p. 315,

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-23of access to the external markets for manufactured goods. Concomitantly, many of the LDCs which can produce primary products for export have erected barriers to investment in these areas on nationalistic grounds. The extractive industries have been particularly affected. Professor Johnson refers to their dislike of their traditional export industries in his Economic P olicies Toward Less 29 Developed Countries . However, the tourist and travel industry has opened up new opportunities for investment in areas where there is no competition from the local traditional monopolies or oligopolies who have tried to block the entry of new progressive firms. The foreign investors themselves are numerous so there is little chance for the establishment of a foreign monopoly in an area so highly competitive internationally as is the tourism and travel industry. It has been claimed that scare foreign exchange and savings are wasted when large, uneconomic industrial plants are erected at the request of the nations' leaders as visible signs of progress. 31 Another writer calls it "conspicuous industrialization," Such 30 visible signs of progress as new hotels and airports are required for the tourism and travel industry, however, so that they may constitute the monuments which the leaders desire and simultaneously be economically useful. 29 Johnson, p. 58. 30 Ibid., p. 68. 31 Hans J. Morgenthau, "Preface to a Political Theory of Foreign Aid," from Why Foreign Aid , ed. by R. A. Goldwin (Chicago: Rand McNally and Company, 1963), p. 76.

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-24Whereas the extractive industri.es tend to promote the formation of foreign enclaves much to the annoyance of the local population, the tourism and travel industry is less apt to do so. Another source of irritation from the extractive industries is the fact that irreplaceable natural wealth is being removed from the country and it is realized that some day the supply will terminate leaving the country with ugly scars and piles of waste. By contrast, the tourism and travel industry most often will enhance the country's natural beauty and normally will either not deplete natural resources or will do so at a far slower rate. This industry often appeals to even the most nationalistic of people since it gives them the opportunity to display their nation to guests. Many LDCs are proud of their tradition to welcome visitors . . 32 . . Hospitably. • • ^ , .. . . ,. , .. .... ... , Most discussions of industrialization for economic development point out the necessity to manufacture for export or for import substitution. The development of the tourism and travel industry will at once serve both ends. As facilities become available for foreign tourists (exports), they are likewise available to the local population which may use them instead of traveling :o foreign countries for vacations (import substitution). Various external economies accrue to the local population such as improved medical, dental, and other services whose suppliers Jaime Avalos Medina, "Valiosa Fuente Sera en Breve el Eje Guadalajara--Chapala--Vallarta, " El Occidental (Guadalajara, Mexico), August 21, 1970, p. 1. "To our proverbial hospitality must be added an increasing efficienty. . . ." This was written after the meeting of Presidents Nixon and Diaz Ordaz in Puerto Vallarta, Mexico, in August, 1970.

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-25al-tracted by tlic tourists Llicn supply everyone in the region. To make the area more attractive to visitors, streets may be paved, parks built, and slums cleared. Since these facilities may be used by the public in general, they may be riglitly considered as external benefits derived from tourism. An editorial in the Guadalajara newspaper. El Occidental , claimed that more was accomplished in a few short months to improve and beautify Puerto Vallarta for the arrival of President Nixon than had ever been done in the entire 33 history of the city. The entire population may benefit from lower prices for many products as firms in the tourism and travel industry, conscious of the necessity for being internationally competitive, exert pressure on local high cost suppliers protected by tariffs and quotas to lower their prices on items consumed by both tourists and local residents . Land unsuitable for agriculture and containing no minerals may become economically useful as a resort area. A region too mountainous for agriculture may bo an excellent ski area once access roads and tourist accommodations are built and the area is promoted as a tourist attraction as Chile has recently discovered. The tourism and trade industry may cause improvements and diversification in agriculture as well as manufacturing when it is made known that there is a tourist market for certain food products Editorial, El Occidental (Guadalajara, Mexico), August 21, 1970.

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--26which are not presently available. The insistence by American tourists on more tender beef in Mexico caused a reaction which terminated with many producers fattening their cattle on corn before slaughter* ing. The Mexican government which controlled meat prices recognized that this class of beef was necessary for the tourist trade and that it cost more to produce. Meat retailers were permitted to charge higher prices and pay higher prices to the producers. Not only the tourists but all of the public benefited as beef more tender than ever was available for general distribution and the cattle growers were receiving higher prices for each steer brought to market. Another problem for the farmer which the tourism and travel industry may assist in solving is the lack of suitable trans_port for his produce. Professor B. W. Hodder writes: ' • It is probably always true to say that there is no point in a farmer having a new crop variety or fertilizers which will enable him to increase his food production very substantially and immediately, if at the same time his form of transport is so costly or the demand for the extra produce is so uncertain or so distant as to make such an increase worthless. It was only when tourism was becoming an important industry for Puerto Vallarta that the paved highway to connect Guadalajara, the capital of Jalisco and an international port of entry, with this 35 resort area was completed. Besides aiding in the movement of B. W. Hodder, Economic Development in the Tropics (Eondon: Methuen and Co., Ltd., 1968), p. 202. 35 The Guadalajara to Puerto Vallarta Highway was rushed to completion just before the Nixon-Diaz Ordaz meeting as the Mexican

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-27tourists from Guadalajara to Puerto Vallarta, this highway, which cuts through agricultural land, will greatly assist the fanner living in this area in bringing his produce to market. Traditionally, newer and more efficient rolling equipment has followed newly paved highways in Mexico since both travel time and maintenance costs have been reduced. As a result of a road constructed primarily for tourism, the farmer is not only able to serve the Guadalajara market more economically, but will also have another rapidly growing market in Puerto Vallarta whose population, it is estimated, will grow to over 100,000 by about 1976 from the 3,000 inhabitants in 1950.^^ It would seem that when the tourism and travel industry is explicitly considered, the need for roads leading to tourist areas is more readily apparent and often the payoff period is substantially shortened; thus, there is less of a problem in decision making concerning government planning than that indicated by Hodder when he writes about the choice which must be made between projects likely to show a profit quickly and projects such as roads which can only 37 be expected to bring long term and indirect results. In the case of the Guadalajara-Puerto Vallarta highway, results were readily measurable since the increased number of foreign registered cars government correctly visualized that a far greater influx of tourists would occur if such a highway were available. Without doubt, national pride was an important factor as well. 36 The News (Mexico City), August 21, 1970, p. 9. ^''Hodder, p. 219.

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-28was apparent and they v.'are short: term since this increase occurred 38 shortly after the road's completion. Tourism has often been responsible for introducing foreign entrepreneurs to the possibilities of conducting business in or with an underdeveloped country. Businessmen have established subsidiaries in countries after having personally seen the advantages of doing so while on vacation. Others have invested in businesses or in paper issued by investment banks as a result of being able to see the opportunities personally while in the country on a pleasure trip. Apparently, a considerable number of firms exporting native handicrafts owe much of their business to the fact that visitors saw the market possibilities of their products or persons in other countries 39 received these articles as gifts from returning tourists. Tliis has been recognized by the Mexican government and a Center of Mexican Handicraft is being built in Guadalajara for displaying these products. The project has attracted the attention of an association of 16 Latin American nations, Interameric an Center for the Promotion of P^xports, which has requested permission to place handicrafts of its member nations on display in the new center. Not only will these products be on display, but there vjill be facilities on the premises to effect large scale sales. The Executive Director for the I. C. P. E. believes there is a market for the handicrafts which are in the main produced by the labor 38^ . . Opinions expressed by various tourist agencies in Guadalajara in interviews held during August, 1970. 39 From personal interviews with firms producing glass and leather handicrafts in Tlaquepaque, Mexico, August, 1970.

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-29intensive cottage industries and that the tourism and travel industry 40 will contribute greatly to their promotion. The contributions of the cottage industry are given by Hodder who writes : Cottage industry is the kind of venture which depends on traditional skills and so can help to build up the supply of manufacturing, managerial, and entrepreneurial experience which in turn can form the basis of a subsequent, more impressive, industrial expansion; it economizes with the scarce factor of capital and makes a fuller use of manpower, being labor-intensive rather than capitalintensive; and it is aimed at producing the kinds of consumer goods with which the domestic market is already acquainted. . . . Japan has gone a long way in converting family industries into decentralized light industries and her example may profitably be followed by the countries of the tropics. '^1 . .. An outstanding example of a cottage industry product which has become internationally famous, of course, is the Bleeding Madras fabric for wearing apparel which India now exports to many parts of the world. It would seem, then, that the contributions to economic development which the tourism and travel industry can make to the economic development of the lesser developed nations are of such importance that this industry can no longer be neglected neither in theory nor in the policy recommendations of specialists in this field. If the tourism and travel industry were incorporated in economic theory, it is doubtful that Professor Myrdal would write today as he did in 1957: 40"Exportaciones : Factor de Crecimiento , " Vision , November 20, 1970, pp. 59-62. ^^Hodder, p. 176.

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-30Trade operates with the same fundamental bias in favor of the richer and more progressive regions against the other regions. The freeing and widening of the markets will often confer such competitive advantages on the industry in the already established centers of expansion, which usually work under conditions of increasing returns, that even the handicrafts and industries existing earlier in the other regions are thwarted.^2 r . Tourists to Chile are directly responsible for introducing Chilean hand carved furniture to the American market and sales have now increased to the point where large air shipments are being made directly to various cities in the United States. Can investment in real estate employed in the tourist and travel industry be called unproductive , as does Nurkse: It may help in some degree to account for the common observation that such domestic saving as does take place in underdeveloped countries tends to be used unproduc tive ly : hoarded, exported, or put in real estate. Real estate investments made by Mexican businessmen in such areas as Puerto Vallarta, Acapulco, and Matzatlan have been extremely productive and beneficial to this nation. It would seem that Nurkse's statement can not stand alone; it must be further qualified when the tourism and travel industry is considered, Meier and Baldwin are representative of those writers who see the problem involved in transferring modern technology to the LDCs . ^2^yrdal, _p. 24. . Personal interviews with owner of furniture store and factory selling to the United States, Santiago, Chile, May, 1968. ^^Nurkse, p. 259.

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-31Since the bulk of technological research in the developed countries is dedicated to finding capital-using innovations, the factor of production most scarce in the underdeveloped countries, it would seem from these writings that these nations have little choice but to adopt the latest capital-using, labor-saving processes which contribute relatively little per dollar invested to providing production employment for the large masses of underemployed.^^ If the labor intensive tourist and travel industry were given the place it merits in these authors' discussions of routes to economic development, then it seems that the future for many of these nations would 46 not be so hopeless as it appears to be. Some, at least, of the "vicious circles" can be broken and done so more effectively by the fostering of a tourist and travel industry. Manufacturing with its myriad of problems is not the ONLY solution as often depicted in present-day literature. Consider Professor Ronis ' comments on the significance of trade in the growing economy of the LDCs : The primary emphasis in this dynamic setting must be on the search for export substitutes, reversing the historical tendency toward an increasingly narrow natural resources -oriented export base . . . . '^Scerald M. Meier and Robert E. Baldwin, "Technical Assistance," in The United States and the Developing Economies , ed. by Gustavis Ranis (New York: W. W. Norton & Company, 1964), p. 120. ^^According to the economists of the Banco de Comercio Exterior, to create one job in the industries of petroleum, metal products, and electrical power generation, investments of $18,960, $10,480, and $29,520 are required, respectively, whereas the tourist and travel industry required only $1,949. See Comercio Exterior , Mexico City: Banco de Comercio Exterior, Jan., 1970, p. 34, '^^Gustavis Ranis , "Trade, Aid, and What?" Ranis, p. 163.

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-32This ovei-looks the advaiitage which the tourism and travel industry of fcrs--tliat of being a welcome addition to rather than a substitute for exports, but also that this industry is a natural resources-oriented export and moreover, that the natural resources are of a rare type-dif f icul t to deplete. Most of the natural resources required for tourism such as sunshine, beaches, and natural beauty will continue to be available with reasonable care, whereas mineral resources, no matter how great are the reserves, must some day run out. Professor Ronis cites the need for exports of the precise type which the tourism and travel industry provides when he writes: Goods which draw on indigeneous entreprcneurship and organizational talent and which are responsive to per capita income change abroad can be increasingly expanded in the context of a growing economy. 48 Unfortunately, he proceeds to discuss changing from a natural resource-dominated base towards more "sophisticated methods of production" as the means to manufacture these goods rather than demonstrating that tourism would provide the exports that draw on indigeneous entrepreneurship and are responsive to per capita income change abroad. Itie writer feels that this characteristic is extremely important in that one of tfic principal arguments given for the increased worsening of the terms of trade of the LDCs is that their main exports, which are primary products, face an income inelastic demand in the developed nations. Ibid., p. 163.

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-33Nor apparently is the Department of Economics and Social Affairs of the United Nations any more av^;are of the benefits obtained from exporting invisibles as it reports on the period 19551965 in the World Economic Survey : Some developing countries managed to diversify exports during the period or at least to reduce their dependencies on a single item: Brazil (coffee) . . . Mexico (cotton and coffee). In another section; Hie only significant item to emerge in this period was chemicals whose share of total Mexican exports of manufactures rose almost Threefold to one-fifth. 50 It is difficult to comprehend why nothing is reported on the growth of the tourism and travel industry when, in 1965, the last year of the period 1955-1965 being discussed, the exports of this industry were valued at $782 millicn as compared to approximately $200 million for cotton and $93 million for coffee. Certainly an export of this significance should not go unannounced. Similarly, the exportation of chemicals about which the Department of Economics and Social Affairs writes, provided only $48 million in exchange in 1965 as compared to the $782 million mentioned previously. True, the growth of the tourism and travel industry for the period 1955-1965 49 United Nations, Department of Economics and Social Affairs, "Dimensions of Recent Economic Growth," World Economic Survey . (New York: United Nations, 1968), p. 45. 5°Ibid., p. 23.

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-34had only doubled as compared to the heralded tripling of chemical exports, but it did so from a base of $393 million in 1955 as compared to $16 million approximately of the chemical Indus try. In fact, one would gather from the yearbook that the tourism and travel industry does not exist as a meticulous examination failed to reveal one single reference to tourism. One wonders to what extent the neglect of this industry in development theory and even in such widely circulated publications as the World Economic Survey of the United Nations contributes to the fact that the great majority of underdeveloped countries have failed to promote this industry which has so much to contribute to economic growth . Fortunately, some underdeveloped nations have recognized the benefits to be derived. The small island nation of Barbados which received only $17 million in tourist expenditures from 91,000 tourists in 1967, last year (1969) obtained $45 million from 140,000 tourists. The exportation of visibles brought in $4.5 million in 52 the same year. That other LDCs are beginning to take heed is illustrated by Venezuela's recent decision to emphasize tourism. In the national plan of governitent investment for the period 1970-1974, this government destined more than $168 million to the tourist sector. The major portion will be used to finance tourist infrastructure such as airports and access roads to beaches, although Ibid., p. 95 and William 0. Freithaler, Mexico's Foreign Trade and Economic Development (New York: Frederick A. Praeger, 1968), p. 42. 52 World News of the Week , Volume 33, No. 19 (January 4, 1971), p

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-35promotional efforLs in oLhcr counLries are not to be overlooked. This is especially noteworthy since this nation receives a large amount of foreign exchange from the pntroleuni industry and vjill probably continue to do so for many years. Nevertheless, the government does not wish to be dependent exclusively on petroleum and is therefore attepting to diversify its exports. Tourism figures prominently in this export diversification plan. Venezuela has seen the number of foreign tourists increase from 5A,000 in 1965 to 110,000 in 1969. Aided by tlie new government assistance, tourism is expected to account for receipts of $110 million by 1974. Besides serving to diversify Venezuela's exports, the tourism and travel industry is expected to be an import substitution industry as well so as to reduce the foreign expenditures of Venezuelan nationa]s who spent $134 million 53 abroad in 1969. In Mexico, this industry has increased in importance until it has now become the greatest export of all. In 1969, it accounted for $1.2 billion in foreign exchange equalling the total value of the export sales of all goods and nontourist services.''^ Such examples as these illustrate that a few lesser developed nations, at least, are becoming aware of the importance of tourism; however, as stated in Chapter I, little is knoim about the industry closely linked to tour ismthat of providing goods and services to foreign retirees. 53 Leopoldo Villar Borda, 'Venezuela Tiene Otro Filon de Oro , " Vision, December 18, 1970, pp. 36 G-H. ^^Banco de Mexico, S. A. , Annual Re port, 196 9 (Mexico City: Banco de Mexico, S. A., 1970), p. 30. ^^Because of the similarity to the tourism and travel industry the writer suggests the name "permanent tourism" for this industry.

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-36Before presenting the information concerning the economic impact of these poeple, it will be necessary to describe the general area where a great nur.ibcr of American retirees are concentrated and to discuss the legal requirements for entering Mexico in this category .

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CHAPTER III JALISCO-ECONOMIC AND DEMOGRAPHIC DATA Jalisco, where most of the retirees in Mexico live, is situated in the east central part of the country between the northern parallels 18° 58' 05" and 22° 51' 49" and the western meridians of 101° 28' 15" and 105° 43' 16". As can be seen in Figure 1, Jalisco is bounded by the states of Nayarit, Durango, Zacatecas, and Aguascalientes on the north; San Luis Potosi and Guanajuato on the east; Michoacan on the southeast; Columa on the south, and by the Pacific Ocean and the state of Nayarit on the west. The total area of Jalisco, the sixth largest state in the nation, is 30,900 square miles, which is 4.1 per cent of the total area of Mexico. In area, it is comparable to Maine. Although Jalisco lies entirely in the tropics, the climate of the central region which includes Guadalajara and Lake Chopala, the areas to which the vast majority of Americans have retired, can best be described as mildly temperate. The fact that this area lies on a plateau about 5,000 feet above sea level accounts for the fact that in 1967 in Guadalajara, capital of Jalisco, the year round mean temperature was 73 F. with a high of 92 F. and a low of 35 F.'^ Department of Economics of the State of Jalisco, Jalisco: Continuidad y Dinamica (Guadalajara: Government of the State of Jalisco, May, 1969), pp. 23-25. -37-

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-39Tablo 1 presents the high and low rempcratures encountered by the writer during the month of August, 1970, vuth temperatures of Mexico City and some selected American cities for purposes of comparison. TABLE 1 HIGH AND LOW TEMPERiVlLIPvES FOR GUADALAJARA AND SELEC'lED CITIES TEMPERATURES DATE CITIES HIGH LOW August 17 Guadalajara 76 61 New York 86 79 Mexico City 75 73 Atlanta 90 73 Miami 88 82 August 23 Guadalajara 77 63 New York 79 75 Mexico City 72 55 Atlanta 86 Not given Miami 90 79 Source: The News (Mexico City), August 18 and 26, 1970. In general it may be said that the nights are usually mild to cold during the dry season (October-May) with sunshine prevailing during the day. The warmest temperatures are encountered in April and May just before the rainy season begins. During the rainy season, which lasts from June through September, the temperature is usually mild with rain falling nearly every afternoon and evening.^ 2 American Consulate General, General Inform ation on the 2H£l£L^i^I?_ConsuJj^^^ (Guadalajara: Ameri.can Consulate General, Hay, 1969),' p. 1. (Mimeographed).

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Rainfall for Guadalajara totalled 40 inches for the year 1967. As for natural resources, Jalisco is rich in minerals such as manganese, copper, iron ore, gold, silver, and lead. The more than 180 miles of coast line and the 11,000 square miles of forests provide excellent opportunities for the tourists and retirees to fish and hunt. Among the types of fish found are red snapper, sea trout, sharks, marlin, and sailfish. Game animals include the rabbit, gray fox, jaguar, deer, wild boar, and puma. For those preferring to hunt birds, there are quail, wild turkeys, ducks, and geese. Agriculture is an important industry in the economy of Jalisco contributing to over 20 per cent of the gross product in 1969 (see Table 2). Approximately 25 per cent of the total area of the state is , .4 under cultivation and a variety of crops is grown as shown by Table 3. In terms of tonnage, corn is the most important crop in Jalisco; in fact, Jalisco is known as the "corn state." Although other crops are less important on a tonnage basis, it is interesting to note that their production is a large portion of the nation's total. Chick peas, peanuts, linseed, and strawberries are examples of these. Government Department of Economics of the State of Jalisco, J alisco; Continuidad , p . 24 . ' ' ^ ^Ibld., p. 157.

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o vO o H T C UIO i-i < T3 •co(1) O rt ll tn > o CM < rH tn H o CD W CO o Pi tn O O tn rH la H rH rH U o O P 'O 4J o o rH MH o tn tn SO CO c a) o p. o •H Pi rH o <-i o On O rO CO CO vO O 1^1 W C~J CM O O CM r-O O CN M 00 t-H CO vD CO o m o CO o> cn c^ ^1 O CO CO o o o c\i vD O o-\ O t-^ O O rH r--| rH o -aCM CO CO m CO o o m CO CO vO CO u-i 0^ CO CO CO CNl CO o rH csi c~j CNl H rH CO O CNl CO in o rH in rH rH iH \0 CO iH in rH NO in o r-i ON . p^ 60 Pi u o Pi a H o O c u c H H w c a U U CO •H o w W yi to •H rH CO nj u >> o O & rH a •rl Pi D rH •1-J n 60 t\] U <; O tn C UH U M < •H e (U o H 0 tn O H H RI •H S-i d c OJ Pi O o w cv) o rH W H < < CO u W H M O cd (X ON tU i-H Q tn >N C •• in o 0) a •t-i O 3 iJ C (11 tn a O (U CJ (D 60 •H CO [li O c 0) •H •H V-i D > d) E= tn c > B 0) o (U CO O o rH u CO cq (3 CJ C3

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-42TABLE 3 PRINCIPAL CPvOPS FOR 1969 Production (000 Short Tons) Per cent of National Production Corn 2,915 28.47 Sugar Cane 2,530 9.55 Alfalfa 232 3.11 Sorghum 216 12.49 Beans 152 15.00 Chick peas 94 53.12 Peanuts 32 24.16 Linseed 8 36.84 Strawberries 3 18.33 Source: Secretariat of Agriculture and Livestock, Agency in Jalisco. As noted in Table 2, animal husbandry contributes greatly to Jalisco's economiy. In 1969, there were 3.2 million cattle and 2.5 million hogs. This V7as an increase of 48.6 per cent and 139.5 per cent, respectively, over the year 1964. As a result, Jalisco ranks first in the nation in the number of hogs and second in cattle . ^ Turning to the human resources, Jalisco had a population 5 Government of the State of Jalisco, Jalisco: Imagen 70 (Guadalajara, Jalisco: Government of the State of Jalisco", 1970), p. 11.

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-43of 3,322,750 in 1970 as compared to 2,443,261 in 1960--a growth of over 35 per cent.^ Another demographic feature which bears on the character of this state's economy is the very young composition of the population. In 1967, 4^.5 per cent of the population was 14 years of age or younger while only 12 ner cent vjere 50 years of age or older. More than half of the total population fell in the age group of 5 to 29 years of age. Although the birth rate had fallen to 42 per thousand inhabitants by 1967 from 48 per thousand in 1947, the death rate had also fallen from 12.7 in 1957 to 9.5 per thousand inhabitants in 1967. The young composition of Jalisco's population has required a constant increase in the number of schools required as well as teachers. Table 4 indicates the progress which has been made in the field of education. For the construction of physical plant alone, Jalisco spent almost 1.7 million dollars annually in 1966 and 1967,^ The economically active population had increased in size from 517,000 in 1947 to 988,000 in 1967. Of these, 45 per cent were employed in the primary sector, 24 per cent in industry, and 31 per cent in services.^ Of all the sectors of the state's economy, it is the industrial sector which has been most dynamic in the last five years and Nacional Financiera, S. A., El Mercado de Valores (Mexico City: Nacional Financiera, S. A., March 9, 1970), p. 128. ^Government of the State of Jalisco, Jalisco: Continuidad , op. ctt ., p. 104. ^Ibid., p. 30.

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-4ATABLE 4 GROWTH INDICATORS OF THE EDUCATIONAL SYSTEM, 1965-1968 Years Schools Teachers Students PRIMARY EDUCATION 1965/1966 2,560 8,567 475,279 1967/1968 2,814 10,592 580,361 SECONDARY EDUCATION 1965/1966 146 2,725 31,720 1967/1968 187 3,686 48,066 TECHNICAL, INDUSTRIAL, AND COMMERCIAL EDUCATION 1965/1966 41 350 11,610 1967/1968 44 342 14,140 PREPARATORY EDUCATION (MEXICAN HIGH SCHOOL EQUIVALENT) 1965/1966 31 935 9,126 1967/1968 34 1,293 14,221 NORMAL SCHOOL EDUCATION 1965/1966 12 261 3,196 1967/1968 12 264 3,517 PROFESSIONAL EDUCATION 1965/1966 38 1,550 13,615 1967/1968 41 1,866 19,725 Source: Secretariat of Public Education and Department of Public Education of the State of Jalisco. within this sector, manufacturing has led in contributing the greatest increase in the value of production and in persons and capital employed (see Table 5). The data in Table 5 indicate the tendency of manufacturers in Jalisco to adopt capital intensive produc tion mc thods . Miile the

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-45 •coll Q\ Q ,—1 CN (3 1 — 1 vD [ I T—l w o o dJ H ex. <1 M o> t— t M § in u H in w 1-1 H m w 0) u M > c o <: o P-. M )-( cd M i-H Pi I-H o in 6 O o to 01 M C O •i-l 1—1 cj « n u o •r-l 4J U 3 13 O P-i in O (D 1-1 > in CO in 00 O CO O lO f LO CO lO n --3" in i/~i r-^ r~j cT> -JvD O CO ri r-m o '-^ CO r-l CO CM CM <)1-1 vD in O cnI CO vD vD \£' X> VD O v£) CO r-^ O o 00 r-^ 00 t— I CO 1-1 CM CM 60 •I-l u 3 o 60 « •H c •r-l o 3 U in -u 03 C O 60 U 0) C w O H •r^ U JJ 01 3 • 73 03 C P M O r-l H u M a M > rO (U 4J JJ •r-l C C O QJ T) X 0) U 03 ta >^ rQ rQ O t) O r^ 03 2 ^ O •r^ in 4J 03 03 W o )-l ij a o o • ?5 CO 01 3 03 c o 0)

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-46value of capital assets almost tripled in value, the number of people employed less than doubled for the same period. Among the most important industries are those of footwear, textiles, beverages, and food products such as vegetable oils, refined sugar, flour, and meat packing. One of the beverages, tequila, produced over two million dollars in foreign exchange in 1969 as a considerable part of the five million gallon production was exported to AO countries although the United States was the principal buyer q accounting for 90 per cent of all tequila exported. It is probably safe to assume that many American consumers acquired a liking for tequila while they were visiting Mexico as tourists. The constant increase in population coupled with an increasing per capita income has resulted in a greater demand for services whose gross product in 1969 was valued at approximately 140 million dollars as noted in Table 2. Another factor in the increased demand for services is the growth of tourism which, in 1968, was the largest source of income to the State of Jalisco.''"^ In 1969, over two million tourists, both national and international, visited Jalisco and spent 175 million dollars.'''''' This figure is more than four times the state government's entire annual 12 budget of 40 million dollars. Of these two million tourists. Q Jalisco, Department of Economics, Jalisco: Avance , pp. 14-26; Nacional Finaciera, S. A., El Mercado de Valores , ' • November 16, 1970, p. 672, and "Tequila, Bebida que Gana Adeptos 7 ' Mercado." Vision . September 11, 1970, p. 66. lOoepartment of Tourism, Focus on Mexico (Mexico City Department of Tourism, January, 1969), p. 3. ^^Banco de Comercio, Panorama Economlca (Mexico City Banco de Comercio, March-April, 1970), p. 25. 12 El Occidental (Guadalajara), August 19, 1970, p. 1.

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-47226,400 v;ere foreign and over 95 per cent of these were residents of the United States. Applying the average expenditure of $224 as calculated by the Mexican Tourist Bureau, it is estimated that approximately 51 million dollars in foreign excliange was contributed to 13 the state s economy by . internat ional tourism. The government of Jalisco has officially divided the state into five regions. Figure 2 illustrates this division. Of the five regions, it is the central in which most retirees reside, although there are some living in the coastal region resort cities of Puerto Vallarta and Barra de Navidad. In the central region, nearly all of the retirees are located in the Guadalajara-Lake Chopala area. The principal cities with respect to the number of retirees living there are Guadalajara, Chopala, Ajijic, and Jocotopec. These last three are located on the shore of Lake Chopala which is Mexico's largest lake, measuring 60 miles in length and varying from between 12 and 20 miles in width. Informed sources estimate that about 75 per cent of all the retirees in Jalisco x-eside in Guadalajara, the state capital. Preliminary data from the 1970 census indicate that there are 1,196,000 inhabitants in this city which is the second largest in the country,'''^ Guadalajara lies about 5,000 feet above sea level as do Chopala, Ajijic, and Jocotopec. Its latitude is that of the Hawaiian Islands. Department of Tourism, Focus on Mexico, op. cit Au?ust 1969, p. 4. 14 Nacional Financiera, S. A., El Mercado de Valores March 9 1970, p. 129. '

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Figure 2. Jalisco and its five economic including the central region. regions

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-49According to the 1965 industrial census, 70 per cent of the industrial establishments of the entire state were located in the metropolitan area of Guadalajara. This heavy concentration of industry is expected to be reduced in time as the state government is actively engaged in persuading new industry to locate in other parts of the state. Although Guadalajara had 4.42 per cent of the total of Mexico's urban population in 1966, wholesale operations in this city accounted for 6.35 per cent of the national distribution of hard goods and 6.51 per cent of the national distribution of soft J 16 goods. This indicates the importance of Guadalajara as a distribution center not only for the immediate area, but also for northwest ^ . 17 . Mexico . " : . . ^ Tourism is of great significance for Guadalajara as it is estimated that 90 per cent of the two million tourists visiting the state in 1969 went to see Guadalajara while only 10 per cent visited 18 other areas within the state. The aforementioned cities of Chopala, Ajijic, and Jocotopec are basically combinations of resort and Indian fishing villages of 6,000, 3,500, and 3,000 inhabitants, respectively . •'"^ ^^Nacional Financiera, S. A., El Mercado de Valores , December 22, 1969, p. 849. ~ l%arynka Olizar, A Guide to the Mexican Markets (Mexico City: Marynka Olizar, 1968), p. 249, '^American Consulate General, General Information, p 1 18i 19' ^^El Occidental, p. 3 Norman D. Ford, Fabulous Mexico (Greenlawn, New York: Harien Publications, 1970), pp. 115-117.

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CHAPTER IV LEGAL AND FINANCIAL REQUIREMENTS FOR RETIREES Although Mexico welcomes foreign retirees, it does have certain legal and financial requirements.^ These latter, as will be shown later in this study, have provided a new source of capital for Mexico's development over and above what is received from the retirees' expenditures. There are three general categories under which U. S. citizens may enter Mexico to live: (1) Tourist, (2) Visitor, (3) Immigrant. Many newcomers to Mexico take up resideixe under the tourist status as this is the quickest and easiest manner of entering the country. A tourist card may be obtained, free of charge, at any Mexican Consulate, through airlines, or from the Mexican Immigration Office at any border crossing. American citizens do not need a passport: proof of nationality such as birth certificate. Armed Force discharge, baptismal certificate, voter's registration card. The information for this chapter has come from a combination of the personal experience of the writer and the following sources: Eduardo de Sevilla P., "Los Valores de Renta Fija y Su Rendimiento, " Vision , December 4, 1970, pp. vi-vii; Rafael M. de Escobar, How to do Business in Mexico (New York: Exposition Press, 1961), pp. 1-50; Norman D, Ford, , pp. 36-57; and personal interviews with executives from Financiera General, S, A. and Banco de Comercio, S. A., in Guadalajara, Jalisco, during the month of August, 1970. "^50-

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-51or a witnessed affidavit; of place of birth are accepted. The tourist card peniiits the holder to remain in Mexico for 180 days. Along with the tourist card a free automobile permit will be issued for the same period. House trailers, boats, and boat trailers may be entered on the automobile permit. To obtain this permit, the tourist must present his driver's license, car title, and automobile registration. A bill of sale is proof of ownership of trailers or boats. If any of this equipment is borrowed or if the automobile title shows a lien, a notarized authorization from the owner or lien holder is required . A tourist may bring accompanied baggage to Mexico without payment of duty. This baggage should contain only a reasonable amount of personal effects and items for personal use. The personal effects may include one still and one motion camera, sporting and camping equipment, cigarettes, liquor, and a portable radio or television set. As a tourist, one may rent a house or lease real estate anywhere in Mexico and by means of a private contract with a la\i7yer or a bank, real estate may be purchased anyijhere in the country. A tourist may not, however, accept paid employment, engage in business, or own real estate in his own name. At the end of the 180-day period, a person who has entered Mexico on a tourist card must leave. There is nothing to prevent his re-entering immediately, however. As will be noted later, there is a considerable number of retirees living permanently in Mexico under this status. Although the student status is not one under which retirees normally would enter Mexico, legally they can do so if they wish to.

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-52There is no age li.niit and anyone can qualify as a student by taking as little as one course in Spanish. People in this category do not have to leave Mexico every 180 days as tourists are required to do. Nonimmigrant students v.'bo wish to enter Mexico for more than six months may be admitted for a period up to one year to enroll in day classes at an approved official or privately incorporated educational institution. Although a student visa is issued for one year, it may be renewed. To qualify for admittance under this category, the prospective student must show proof that he will be enrolled at an acceptable Mexican school and that he possesses the financial resources necessary to be able to complete his studies. It has been estimated by an official at the American Consulate in Guadalajara that there are 1,000 American medical students enrolled in medical school. Approximately 500 of these are married. Tuition for medical school is $2,000 per year and the average expenditure for maintenance of each student is $5,000 per year. In addition, there are approximately 3,000 American summer students who pay an average tuition of $400 per student. Expenditures for maintenance for these students is conservatively estimated to average approximately 1,000 dollars per summer per student. Tlius , over 11 million dollars annually is 2 spent by American students in Guadalajara. For those who do not wish to live permanently in Mexico, but do desire to remain longer than six months, there is the second category of Visi tan te-Rentis ta (visitor receiving a fixed income). Interview with officials of the American Consulate in Guadalajara, August, 19 70.

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-53This classification was intrroduced in 1962 as part of a plan to liberalize the requirements for permanent residence. It was designed to allow American retirees to sample life in Mexico as permanent residents for a trial two-year period. To obtain entrance under this category, a United States passport is required as is proof of a minimum fixed income of $160 per month for a single person or for the head of a household plus an additional $80 per month for each dependent over 15 years of age. The original permit is for six months' duration, but may be renewed * three times without having to return to the United States' border. At the end of two years, those who have entered Mexico under this status must leave the country; however, they may re-enter imm.ediately on a tourist card or may apply for a new Visi tante-Rentis ta permit. To qualify for this permit, the applicant must be 55 years or older, and his income must be derived from sources outside Mexico. There is one important exception about which more will be mentioned later in the report and that is, income from Mexican securities or mutual funds is permissible. An automobile and personal possessions may be brought in for the period of residence, but the same legal restrictions on purchasing real estate apply in this case as they do for tourists. For the non-Mexicans who wish to become legal permanent residents, there is the third category of Inmigrantc (immigrant). An i nmigrante is one who enters Mexico to establish residence and intends to acquire the status of permanent resident (inmigra do) . ^ Literally, "one Vv'ho has immigrated."

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-54Until the inmigrante has attained the inmlgrado status, he may not seek employment in Mexico and may not engage in any business except that for which he was admitted, if in fact he was admitted for the purpose of engaging in business, as is possible under some of the classifications of inmigrante . The inmigrante remains in this probationary status for five years. During this time, he may not be absent from Mexico for more than 90 days during the first two years nor more than 180 days during the entire five-year period. At the end of each year's residence, during these five years, permission must be obtained to renew the inmigrante status from the Department of Interior (Gobernacion) . There are seven categories of inmigrante . 1. Family Members The financially dependent alien spouse or blood relatives up to the third degree who are supported by a Mexican citizen, inmigrante , or inmigrado may be admitted in the category of inmigrante . 2. Technicians and Skilled Workers Alien technicians and skilled workers may be permitted to enter as inmlgrantes , if their services, in the opinion of the Secretaria de Governaci($n (Department of Interior), cannot be rendered by residents of Mexico. 3 . Executives for Positions of Responsibility Aliens may enter Mexico to assume executive or other positions of high responsibility in firms already established in Mexico if it is felt by Gobernaci6n that their services are required.

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-554 . Profes s ionals People considered by the government to have outstanding competence , in a field where such capabilities cannot be obtained locally, may be admitted in this category. University professors to teach specialties new to Mexico enter in this s tatus . 5 . Cai:)ital Investors An immigrant in this category is admitted exclusively for the purpose of investing capital in any branch of agriculture, industry, or export trade. Tlie purchase of sliares of stock of a Mexican corporation is not considered an investment which vr/ill qualify in this category. The law requires that the minimum investment for the Federal District (Mexico City) and adjacent states must be $48,000. For the rest of Mexico, the minimum investment required is $16,000. There are special cases v^here the government will permit a smaller investment such as in remote or under-exploited areas or in industries judged to be essential to the economy of Mexico. Investors are forbidden to be gainfully employed in any activity except that in which they have invested, 6 . Inves to rs in Securit ies of th e Fed eral Government or of the National Credit Ins ti tuti ons A person may obtain inmigrante status by investing in either government securities or in approved securities of national credit institutions. The amount invested must be sufficient to produce an income of $240 per month for a single person or head of a household and $80 per month for each dependent over 15 years of age. The securities which make up the investment must be deposited with Nacional Financiera, the government bank for industrial development. Ihe dividends or interest earned may be freely withdrawn, however. 7. Retired Income-holder To qualify under this category, a single person or head of a household must receive a minimum fixed monthly income of $240 for himself and $80 for each dependent in his family who is over 15 years of age. This income may

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-56come from any reliable source from any part of tlie world. Formerly, Lhe minimum monthly incomes reqviired were $320 and $160, respectively, but, in 1962, these requirements were lowered to the present $2A0 and $80. This reduction in minimum income requirements I'esulted from a study on the cost of living for retirees which was made by orders from Miguel Aleman, ex-president and head of the Tourism Department. He recognized the contribution which foreign retirees could make to the growth of Mexico and, therefore, searched for vjays to not only make retirement in Mexico more attractive, but also to permit more foreigners to retire there. The creation of the category of VisitanteRcntis ta and the lower income requirements for the retired income-holder are the results of his efforts. All inmigrantes may bring with them household effects such as appliances, furniture, and clothing, but only those in the categories of Retired Income-holder and Investors in Securities of the Federal Government or of the National Credit Institutions arc permitted to bring an automobile duty free. The inmigrante-rentis ta may not sell or otherwise dispose of the vehicle in Mexico, but he may do so outside of Mexico and then return witli a substitute without paying duty. Prior permission to do so must be obtained from the Department of Industry and Commerce. This is an added inducement to retirees whom the Mexican government expects v^ill enter under these two categories to the exclusion of the other five classifications of inmig rante The inmigrante-rentis ta is not permitted to engage in remunerative employment and is expected to live from the income received from "reliable sources" as mentioned previously. Ttie "reliable sources" include annuities, a United States government or corporate pension. United States Social Security, investment companies, or trust funds administered by an American or Mexican bank. Rental

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-57incoiiie from real estate ov;aed in the United States is also acceptable as a "reliable source." If the retiree prefers, he may deposit 14,400 dollars for himself and 4,800 dollars for each dependent 15 years or older in a designated Mexican bank and monthly payments equal to the minimum required by law vjill be made to him during the five year period as an inmigrante . Since an inndgrante rentis ta must apply for renewal of his status every year, he may deposit annually only $2,880 for himself and $960 for each dependent 15 years or older. It is not necessary to deposit the entire amount for the five-year period at one time. Because of the higher return received in Mexico on fixed income investments, many retirees who lack sufficient fixed income to meet the legal requirements bring money to Mexico where it is invested. Following is a list of the most popular fixed income investments with their interest rates as of December, 1970: 1 . Deposi t Banks Time deposits for periods from 180 to 720 days yield 8 per cent interest on which no income tax is required to be paid. The interest earned is paid monthly. 2 . Mortgage Banks These banks are similar to the American savings and loan associations. They lend funds on improved real estate. The mortgage bank offers certificates ( Cedula s Hipotecarias ) which are backed by their assets and a real estate mortgage. They will sell or redeem unlimited amounts of these certificates at sight. The certificates are legal investments for Mexican trust funds and insurance companies and are sold in minimum denominations of $8. They

PAGE 69

yield 8 per cent annually which is nontaxable and is paid monthly. Mortgage bonds, which they also offer, are similar to the certificates and yield the same 8 per cent on which no tax is paid. Mortgage banks issue certificates which are essentially time deposits for one year and five years. They pay 9 per cent and 9.6 per cent respectively after income tax which they deduct and remit to the government. Again, interest payments are made monthly. Investment Banks These institutions are chartered and are under the control of the Central Bank and the Treasury Department. Their activities are regulated by the National Banking Commission. Investment banks were formed for the purpose of promoting industry by lending funds against accounts receivable and for making loans for all legitimate agricultural and industrial purposes. Approximately 60 per cent of all financing of the private sector in Mexico is supplied by these banks. Nearly all are privately owned and many belong either to large commercial banks or to strong financial groups. They issue bonds which pay 9 per cent interest net. These bonds are sometimes called "interest bearing checking accounts" because they are redeemed on demand. Certificates for periods from two to ten years are also issued and pay interest ranging from 9.24 per cent for the two year certificates to 10.07 per cent for the ten year certificates. Interest is paid monthly. These certificates are readily negotiable and in the free market as of December, 1970, a two year certificate was being quoted at 94 which would provide a yield of 13 per cent. Promissory notes or Time Deposit Contracts are still another form of investment bank paper. Interest is paid monthly and varies from an annual rate of 10 per cent net for sums up to $40,000 to 11 per cent net for $80,000 in the larger investment banks; in the smaller banks, the rates vary from 10.5 per cent to 12 per cent net.

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_-594. Nacional Financiera This government bank for industrial development issues obligations for a period of 3 years which yield 12 per cent paid every 3 months. As this interest is tax free, the 12 per cent is net. Nacional Financiera obligations are highly liquid and if the investor resells them at the end of 1 or 2 years, the yield is reduced to 9 per cent of 10.5 to 11 per cent net respectively. 5 . Telephone Company Bonds These bonds carry a net interest rate after taxes of 8.7 per cent on a par value of 100. Inasmuch as the market price has been at considerably under par, the net long term yield has been at about 14.4 per cent. Income from any of the aforementioned investments may qualify as income from "reliable sources" as long as the investor leaves them in a trust which is administered by a Mexican bank and agrees not to sell them during the year for which he is requesting permission to live in Mexico as an inmigrante . Should he desire to do so, he may dispose of the investments, but the Mexican bank administering the trust must notify Gobernacion immediately that such action is being taken. Tlie inmigrante-rentis ta m ust then show that he is receiving an equivalent income from other "reliable sources" or he will be asked to leave the country. After having resided in Mexico lawfully as an inmigrante . the non-Mexican may apply for the status of inmigrado . At this time, he will be required to show that he expects to continue to receive at least the minimum income from "reliable sources" as before. Once an inmigrado , however, he may then engage in any legal, remunerative endeavor and he is not required to apply each year for an extension

PAGE 71

-60of his permission to remain in Mexico as he had to do as an inmigrante . He also can enter and leave the country as often as he wishes. The inmigrado status may be lost if he remaines out of Mexico for two consecutive years or for five years in any ten-year period. Once he becomes an inmigrado , he must pay the Mexican duty on his automobile, Inmigrantes and inmigrados are required to pay Mexican income tax only on investment income from Mexican sources and at the same time, all Mexican investments are exempt from the United States interest equalization tax. All interest and dividends are received by the investor with income tax previously deducted at the source and there is no necessity to report this income to Mexican tax officials. Thus, if a retiree is not gainfully employed, he does not need to declare nor pay income tax except in two instances. Rent received from Mexican real estate is subject to taxation as is property. Property taxes are extremely low and are often based on outdated assessments. The tax on an average house runs from $10, to $70, per year. One further observation about the inmigrante status should be made. A number of retired couples have been able to enjoy the benefits of being both tourists and inmigrantes. One member becomes an inmigrante which permits him to own land in his own name while the other remains in the tourist status and therefore is able to bring into the country a new automobile without special permission each time a border crossing is made. In addition, only the member of the family who is an inmigrante must show a source of income from reliable sources and only the $240. monthly for a single person is required.

PAGE 72

CHAPTER V RESKARCH PROCEDURE To measure the economic impact of the American retiree, it was first necessary to obtain data on their expenditures. Originally, it v.'as planned to use a probability sample and because all American residents are requested to register v/ith the American consulate in Guadalajara, it was though that it would be relatively simple to prepare a frame based on the consulate files. From this, a simple random sample could be dravm. This plan had to be abandoned after a meeting with consular officials assumed that this amounted to about 30 per cent of all the retirees living in the state of Jalisco.''" It was apparent that a frame based on the registration of retirees with the American consulate could be biased. There was no basis for judging whether or not this sample was representative of the entire population. As there is a society of American residents in Jalisco, American Society of Jalisco, the possibility that its membership list might serve as a suitable frame was examined. However, this list included only 250 members, approximately, and of these a substantial number were not retirees, but gainfully employed Americans. Others Personal interviews with sulate in Guadalajara, Jalisco, various members of the American conAugust, 1970. -61-

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-62were residents of the United States who hc'id formerly lived in Mexico. This obviously was not a representative listitig of American retirees. An attempt was made to combine the membership lists of American lodges, churches, bridge clubs, and the American Legion. This plan was rejected for the same reasons that the American Society's list V7as not used. Many American retirees do not belong to any formal group. In addition, they are extremely mobile--within the city of Guadalajara, within the country of Mexico, and between Mexico and the United States. During the process of investigating the aforementioned possibilities, many interviews were conducted with American businessmen including an official of the Guadalajara radio station which broadcasts in English and the editor of the weekly English newspaper. Officials of American organizations were interviev^ed as were Mexican officials of the State of Jalisco Department of Tourism and the local office of Gobernacion. While extremely useful information was obtained concerning characteristics of the various strata within the total population, it was impossible to obtain a frame which would permit the use of a stratified probability sample. It was becoming apparent that non-probability sampling could be employed and fortunately, it was found that the American retirees in Guadalajara tended to live in a few, rather well-defined areas. Further, it was the consensus of those interviewed that within each area, the retirees living there appeared to be in approximately the same economic stratum. Since the primary aim of the survey was to establish the spending patterns of the American retirees in Jalisco, it appeared that the

PAGE 74

-63use of non-probability area sampling could permit a representative sample to be obtained. The writer felt, partly because of having lived in Mexico for many years, but more importantly because this was the opinion of the businessmen and officials obtained during the initial interviews, tliat tlie American retiree population was considerably more homogeneous than would be the population of an American city of the same size. Not everyone wishes to leave his country of birth and his friends and relatives to spend the remainder of his years in a foreign country where the language, laws, customs, and even the food are different from what he is accustomed to encountering. Other factors limiting the heterogeniety of the popuation are the legal and financial requirements discussed in Chapter IV. This belief was considerably substantiated when permission was given to examine the files of an expert who specialized in processing the applications of prospective in migrante-rentis tas as well as the annual renewal of their status after having been admitted initially. Not only did the names and addresses assist in preparing a list of retirees to be interviewed, but the information as to sources and amount of income proved to be invaluable as a control against which the respondent's information was checked. A copy of the data sent to the Mexican government was maintained in each file. One salient fact emerged. If the Mexican government estimates the contribution of the retirees to the economy based on the income declared by the retiree, its estimates will be unders tated by at least 50 per cent as in the majority of the cases, only the required minimum income was stated as being received. Other information in these

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-64files often shov;ed thaL as much as five times this mininiuni was actually being sent to the retiree by such American sources as banks, pension funds, and others. It is understood that Mexican investment banks, mortgage banks, and other institutions approved by the Mexican government for investment by the retirees report to the federal government the amount held by inmigrante-rentis tas , but, of course, this does not resolve the previously mentioned problem of understatement of income received from sources outside of Mexico. To determine the amount of money being brought into the country by retirees, it was apparent that even if permission were obtained to examine the official government files, the data obtained would be totally inadequate. Thus, a summation of the retirees' expenditures appeared to be the only feasible way to obtain the desired information. It was felt that most retirees were receiving incomes which were expected to continue for the rest of their lives and therefore, there would be little reason to save for any extended period. The information contained in their applications for inmigrante-rent is t a confirmed the fact that most incomes were indeed permanent and although the question as to v^hcther they tended to save something from their incomes was not specifically asked in the questionnaire, the writer, who conducted all interviews, did raise this question in connection with the "other" category when monthly expenditures were discussed.^ Such saving as was done was usually spent during the year on trips to Sec Appendix.

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-65the United States or on travel within Mexico. Of the 263 interviews conducted, 164 respondents or 62.4 per cent of those interviewed did travel to the United States during the year. Also 179 respondents or 68.1 per cent of the people interviewed gave travel as one of the activities in which they participate. Travel was the most popular of all activities mentioned (26.5 per cent of the total response). To obtain the desired representative sample, it was necessary to know not only how large the total population is, but also how this population is divided among the various economic strata. Since spending patterns probably would vary according to whether the respondent lived in the metropolitan city of Guadalajara or in smaller population centers, a breakdown of the total population according to where the respondents lived was needed. A precise distribution of the population was impossible to obtain; in fact, there are no official data on the total number of retirees living in the state. As noted previously, members of the American consulate estimate that there are 10,000 retirees in Jalisco and many writers of popular books cite this figure. Yet in various preliminary interviews, other estimates were made of the total number of residents as well as the retiree population of various cities and villages. Some sources cited percentages while others offered numerical estimates. The local head of Gobernacion , the governmental entity in charge of maintaining control of foreigners residing in Mexico, estimated that there were Data obtained from question 17,

PAGE 77

-66somewhat more than 10,000 American retirees living in Jalisco as inmigrantes or inmigrados , but that there were an untold number of American residents with only tourist papers. As these people are included in the total number of tourists entering and leaving Mexico, there is positively no way by which the tourists who are permanent residents may be separated from the legitimate tourists in any official data. As estimates of the tourists who are permanent residents in Jalisco ranged from 2,000 to 4,000, it was decided to use a value midway between these extremes; therefore the total population of American retirees in Jalisco was considered to be 13,000. During the survey, it was found that the respondents who were tourists freely admitted it when they answered question 20. Tabulation of these responses indicated that 66 out of a total of 263 respondents stated they were tourists. This is 25 per cent of all respondents. It was interesting to note that the 25 per cent result also held for residents of Guadalajara and for the rest of Jalisco, This is to say, the survey indicates there was no higher concentration of tourists who are residents in one area than in the other. Because of the statement made by the head of Gobernacion in Jalisco to the effect that there are somewhat more than 10,000 legal retirees (those having inmigrante or inmigrado status), the writer used as a basis for his calculations 10,500 legal residents. The results of applying the 25 per cent value found in the survey to the 10,500 figure indicate that there may be perhaps 3,000 to 5,000 residents in the tourist category which would bring the total population to somewhere between 14,000 and 16,000 residents rather than the 13,000 assumed for

PAGE 78

sampling purposes. Certainly, as a result of this study, it seems clear that there are many more American retirees living permanently in Jalisco than indicated by the "official" estimate of the American consulate . The businessmen and officials questioned initially, generally estimated that there are 10,000 American retirees living in Guadalajara or stated that about 75 per cent of the total retiree population in the state of Jalisco lived in Guadalajara. The Lake Chapala area reporter for the newspaper serving the English-speaking colony in Jalisco, who has resided in this region for many years, furnished an estimate of the number of retirees living in various cities and villages around the lake. The total of these estimates were approximately 2,000 residents. Tliis plus the declaration of the governor of the state of Jalisco to the effect that there are about 1,000 American retirees living in Puerto Vallarta seem to substantiate the estimate of 13,000 made by businessmen and government officials in the initial interviev7s referred to previously. Once the estimate of the total population was made, it was then necessary to estimate the number of households as this is the unit for which the data were to be taken. Information obtained in the preliminary interviews indicated that the average household consisted of 1.75 persons. This value was used to convert the total population to the number of households. It was felt that a reasonable sample which could be attained in the time available of approximately one month would be 3 per cent of the total population. "Governor Declares," The News (Mexico City), August 21, 1970.

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-68To assist in obtaining interviews, cooperation was requested of the English newspaper and the Guadalajara radio station Vs/hich broadcasts in English. As a result of this publicity V7hich not only explained why the survey v^as being undertaken, but also assured the respondents of complete anonymity, there were only two refusals to consent to interviews and all information was freely given. In many instances, it was found that the respondents had collected information on expenditures so that it was readily available when the interview was conducted. Without this valuable assistance, the 3 per cent goal could not have been reached in the time available. Table 6 presents the original goals of households to be interviewed along with the number of households that were actually visited. TABLE 6 CALCULATION OF NUMBER OF RETIREE HOUSEHOLDS TO ESTABLISH SAMPLE SIZE PEOPLE HOUSESAMPLE SA>IPLE HOLDS GOAL TAKEN Total Population 13,000 Guadalajara 10,000 Rest of Jalisco 3,000 7428 5714 1714 223 172 51 261 202 61 SAMPLES TAKEN AS PERCENTAGE OF TOTAL POPULATION 3.54 3.54 3.56 After the 263 households were interviewed, it was found that these were comprised of 473 people. If the sample is representative of the universe, then there was an average of 1.8 people per household rather than 1.75.

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-69Tlic 202 households that were interviewed in Guadalajara were comprised of 358 people and tlie 61 households interviewed in the rest of Jalisco included 115 people. Itiis would mean that the average household in Guadalajara consisted of 1.77 people and the average household in the rest of Jalisco was composed of 1.89 individuals. If the value of 1.77 and 1.89 obtained from the survey had been employed rather than the 1.75 value v\7hich was actually used, then it may be seen from Table 7 that three additional households should have been sampled in Guadalajara and three less should have been taken in the rest of Jalisco. TABLE 7 RECALCULATION OF THE NUMBER OF RETIREE HOUSEHOLDS TO ESTABLISH SAMPLE SIZE USING VALUES OBTAINED IN SURVEY PEOPLE HOUSEHOLDS SAMPLE TAKEN SAMPLE TAKEN AS PERCENTAGE OF POPULATION Total Population 13,000 7222 (13,000) 1.8 564A (10,000) l."77 1587 ( 3,000) f.89 263 3.64 Guadalajara Rest of Jalisco 10,000 3,000 202 61 3.57 3.84 Note: The sum of the households for Guadalajara and the rest of Jalisco do not equal the households in the total population because of rounding off of the number of persons per household. It was found that there fundamentally were six areas called colonia s within Guadalajara, one suburb, and one housing development where the American retirees tended to live. lliey are as follows:

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-701. Jardines del Country 2. Lomas del Country 3. Chapultapec Country 4. Circunvalacion Vallarta 5. Chapalita 6. Providencia The housing development, Rancho Centento, is located on the outskirts of Guadalajara and has been built primarily for American retirees. The suburb is Zapopan whose limits are contiguous with those of Guadalajara. Because of the lower wages which are demanded by Mexican assistants, a number of American handicapped people have retired to special homes located in the colony Cuidad del Sol.^ Approximately 100 of these handicapped persons are retired there and three interviews were made at one of the homes to assure that these people were included in the sample. Nearly all of the people interviewed outside of Guadalajara resided in the cites of Chapala, Ajijic, and Jocotopec. This was done on the recommendation of various long-time residents of the lake area including the reporter who covers this region for the English newspaper. Care was taken to include the two most important retirement projects designed for American retirees which are similar to the above mentioned Rancho Contento. In all instances, a 3 per cent sample was strived for. Colony (colonia in Spanish) is similar to a ward in an American city.

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-71Ifie list of households to be interviewed was prepared with the assistance of membership lists of various organizations, the private files of the individual who assists the retirees to become inmigrantes and i nmig radqs , and by the process of randomly selecting streets in the areas tvhere Americans were known to be living. Samples of the three retirement projects were taken so as to cover the entire area at the 3 per cent sampling rate.

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CHAPTER VI ANALYSIS OF SURVEY RESULTS Wliile the primary purpose of this survey was to obtain data on the spending patterns of the American retiree in Jalisco, the opportunity to acquire knowledge about some of the socio-economic characteristics of this population presented itself and, as can be seen by the questionnaire in the Appendix, the majority of the questions was designed to furnish the additional information. It is hoped tliat these additional data may be useful to social scientists and marketers who are interested in learning more about this important group of people. The data obtained from questions one and two were mentioned in Chapter V, but are shown in Table 8, v/hich follov7s, to present a complete analysis of all data in this chapter. The age distributi on of the respondents is given in Table 10. Table 11 shows the number of married households interviewed which v;ere composed of two or more persons. It may be noted that 79.1 per cent of the total households interviewed consisted of married persons with two or more people per household, while one person households accounted for 20.9 per cent of all households interviev/ed . -72-

PAGE 84

-730) Id tn i-l u o C u .c OJ (3 0) o ^ cn u 3 0) U-( o P-i O p:! •H > •rH T3 c 0) (X CO O O 0) o o -u a) c (1) ex CO ^ n o CL) LT) e 0) >-i ^ 3 Pi a 0^ 0) 60 ^ CO 0) •H U cd 0) o c -a •H CO pi o 00 OA 00 CO in -3o O tn o o to ^ — ^ 3 O m CM (J ca XI 3 O o o CO •H IK o 4-1 tn Hi to O H a •H tn 01 3 ta > c •rH 'O •H > •H >^ XI -a 0) c •H to 4-) XI o to ptn to 3 > d M e 3 H . O CN U e 3 (-1 O O 0) o 3 rH m CO O > (1) CO x: o H xi •• 01 XI u O u-1 e 3 rH O a H H W Q o c/:i w PS 1-1 H O X w C/2 to 0) XI iJ iH en ro o c to 0) e CO rH Q) T3 0) -) CO CO Xl CO 3 O O o tn CO 1-1 14H o CO OJ PS o

PAGE 85

74w pq CO H w o o w w M H o O M H t3 H C/3 M Q w O tn u m a o QJ -a 0) d M O cd p. 4J tn o O H C CD CO fH cU 0 4_j CO CO (-" II QJ \J CO p Q m P4 *H QJ P to Q Q QJ , 1 ( 1 M M-1 CnJ r\ \J •H t-* L.* QJ Tt 1 CO .-J Q f— I QJ CO w CO cd' rH tH 4J rH 0 0 I-l rrl in QJ CJ CO 1 — 1 W t J M —1 -J TIR RE CO QJ tu w QJ M I — 1 C. 1 P1* 0 rH CO -C QJ 4j Q *H w 0) CO CUj 0 J I CO p _[ CM r-i "
PAGE 86

-7')Question three provided information concerning the education of the respondents. An overwhelming majority had had some college training and 64 per cent of all respondents stated that they had received a bachelor's degree or higher. Table 12 indicates this distribution. TABLE 12 YEARS OF SCHOOL CO^^PLETED BY RETIREE RESPONDENTS Last Year Completed Number of Responde nts 20 27 19 1 18 12 17 12 16 116 15 1 14 24 13 4 12 (High school) 45 11 3 10 6 9 1 8 (Grade school) 10 7 1 Total 263 Percentage of Total Re spondents 10.3 0.4 4.6 4.6 44.1 .4 9.1 1.5 17.1 1.1 2.2 0.4 3.8 0.4 100.0 Cumulative Percentage Distribution 10.7 15.3 19.9 64.0 64.4 73.5 75.0 92.1 93.2 95.4 95.8 99.6 100.0

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The following breakdown indicates those respondents who had some college training, some high school, or some grade school education. TABLE 13 AMOmT OF EDUCATION OF RETIREE RESPONDENTS Am^ount of Education « Number of Respondents Percentage of Total Respondents Some college 197 74.9 Some High school 54 20.5 Grade school only 12 4.6 Total 263 100.0 The replies to questions four and seven were analyzed to ascertain what year the respondent had arrived in Mexico. Table 14 shows that 225 of the 263 respondents (85.6 per cent) have come to Mexico since 1960. The states of California and Texas were the states from which 134 respondents had retired. This is 51 per cent of the total numher of respondents. The respondents were not queried as to whether they had visited Mexico as tourists previous to retiring nor were they specifically asked if the distance from their last place of residence in the United States had any influence in their choosing Mexico for retirement. No respondent mentioned distance as a reason for choosing Mexico in answer to question eight. Hovever, the immediate

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-77TABLK 14 YEAR IN MUCK RKTIREE RESPONDENTS RETIRED TO MEXICO Year Retired Number of Respondents Percentage of all Respondents Cumulative Percentage Distribution ly /o 8 3.0 1969 58 22 . 1 25.1 1968 43 16. 3 41.4 196 / 16 6.1 47.5 1966 38 14.4 61.9 1963 12 4.6 66.5 1964 13 4.9 71.4 196 J 24 9.1 80.5 1 O o 13 4.9 85.4 1960 11 oy . D 1959 7 2.7 92.3 1958 10 3.8 96.1 1955 5 1.9 98.0 1952 4 1.5 99.5 1933 1 0.4 99.9^ a Percentages rounding off. do not add up to ]00 per cent because of border states plus the states contiguous to the border states accounted for 147 respondents or 55.9 per cent of the total number of households in the sample. The fact that there is a large concentration of Mexican residents in Chicago may have caused the

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-78TABLE 15 STATE FROM WHICH RETIREE RESPONDENT RETIRED TO MEXICO Percentage Number of of Total State Respondents Sample California 99 37.6 Texas 36 13.7 Illinois 29 11.0 New York 15 5.7 Washington 10 3.8 New Jersey10 3.8 Florida 10 3.8 Ohio 6 2.3 Mississippi 6 2.3 Indiana 6 2.3 Massachusetts 5 1.9 Pennslyvania 5 1.9 Oklahoma 4 1.5 Louisiana 4 1.5 Colorado 4 1.5 Oregon 4 1.5 Iowa • . 1.5 Virginia 2 0.8 Washington, D . C. 2 0.8 Michigan 1 0.4 retirees from Illinois to be more aware of Mexico. The answers to question six concerning the last job held before retiring were not surprising in view of the large percentage of residents which indicated that they had attended college. Nearly all of the positions (perhaps as much as 85 per cent) shown in Table could require a college education in this yea^, although perhaps not at the time that some of the retirees were employed.

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-79TABLE 16 LAST JOB HELD BY RETIREE RESPONDENT BEFORE RETIRING Job Number of Respond en ts Percentage of Total Prof ess ional 91 34. 6 Executive 73 27.8 Military 28 10.6 Educator 24 9 1 Government 16 6.1 Skilled Worker 15 5.7 Housewife 8 3.0 Unskilled Labor 6 . 2.3 Handicapped 2 0.8 The majority of the retirees interviewed had retired directly to Mexico, although 79 respondents (30 per cent) had retired elsewhere before coming to Mexico. Most of these 79 respondents have come in the last decade, as may be seen from Table 17. It is a popular belief that Americans choose Jalisco for retirement for two reasons --climate and the lower cost of living. Officials at the American consulate, for example, state only these two reasons and seem to give them equal weight. Writers of popular books generally do the same. However, the answers given to question eight which asked why the respondent chose Jalisco revealed that

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-80TABLE ].7 YEAR PRI'lVIOUSLY RETIRED RESPONDENTS ARRIVED IN MEXICO Year — — — — Number of Respondents 1970 6 1969 24 1968 12 1967 14 1966 9 1965 6 1963 2 1962 5 1959 1 these two reasons are not rated by the retiree as being equally important and, further, that there are other important reasons v.'hy American retirees choose Jalisco. Any other country contemplating attracting Ar.ierican retirees may find Table ]8 of interest. Question nine required the respondent to state his yearly income within rather narrow limits. Table 19 shows this distribution for the 263 respondents. Nearly half (44.9 per cent) of the respondents had yearly incomes of $8,000 or more and 60.5 per cent of all respondents received an annual income of $6,000 or more. The fact that 11.4 per cent of those interviewed declared their yearly income to be under $4,000 may, in part, account for a large number of the permanent American residents of Jalisco v/ho

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-81TABLE 18 REASONS FOR CHOOSING JALISCO BY RETIREE RESPONDENTS Reason Given Number of Responses (1) Percentage of Respondents (2) Percentage of Total Ansv/ers (3) Climate 188 71.5 63.3 Cost of Living 57 21.7 16.1 Friend's Recommendation 31 11.8 8.8 Liked Mexican People 25 9.5 7.1 Cultural Activities 17 6.5 4.8 Beauty and Scenery 16 6.1 4.5 Favorite Spot After Visit 14 5.3 4.0 Doctor's Pv.ecommendation 3 1.1 0.8 Like American Colony 2 0.8 0.6 Total 353 100.0 Note: Values in column 2 were calculated by dividing values in column 1 by the 263 respondents. The total of column 2 exceeds 100 per cent because respondents gave multiple answers. remain in the tourist category. It was stated in Chapter IV that to enter Mexico as an inmigrante-rentis ta , a married couple must prove that it has a guaranteed monthly income of $320. This is $3,840 on a yearly basis and is very close to the upper limit in the range of under $4,000. If it is assumed that 11 per cent of the total American retiree population receives less than the legal minimum, and this percentage is applied to the estimated total retiree household

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-82TABlJi 19 YEARLY INCOME OF RETIREE RESPONDENTS 1 n /~\ t-ri O xiiL-oiiici jS-cing e Number of l\.t_-0 Ll\JL CIL L.O of Total i CL l,-t;iILci.^tCumulative unuei 9HjUUU X J. • H 111 9fi 1 ^Q S $6,000 $8,000 J J • i $8,000 $10,000 37 14.1 69.2 $10,000 $16,000 41 15.6 84.8 $16,000 $20,000 33 12.5 97.3 $20,000 and over 7 2.7 100.0 Total 263 100.0 population of 7,222, as shown in Table 7, then there are approximately 800 households whose members cannot become inmigranterentistas because the y cannot meet the financial requirements. Assuraing that the 1.8 persons per household found in the sample is representative of the total population, there are then approximately 1,500 Americans retirees living in Jalisco who cannot ever become inmig rante-rentistas . This could account for 50 per cent of the estimated 3,000 permanent residents who are officially tourists . It was found that the retirees in the lower income groups were not the only respondents Xv'ho give the cost of living as a reason for being attracted to Jalisco. As could be expected, the greatest percentage of those who gave this as a reason came from

PAGE 94

-83the income group of $4,000 or less, but, as Table 20 indicates, retirees in much higher incoine groups also vjere attracted by what they felt were lower living costs in Jalisco. TABLE 20 DISTRIBUTION ACCORDING TO INCOME OF RETIREE RESPONDENT'S WHO GAVE COST OF LIVING AS A REASON FOR CHOOSING JALISCO Percentage of Number of Number in Total in Respondents Group Wlio Gave Group Who Gave Income Group in This Group This as Reason This Reason (1) (2) (3) (4) $4,000 or less 30 16 53.3 $4,000 $6,000 74 8 10.8 $6,000 $8,000 41 14 34.1 $8,000 $10,000 37 13 35.0 $10,000 $16,000 41 4 9.8 $16,000 $20,000 33 2 6.1 Note: Percentage in value in column 3 by value coJ.umn 4 was in column 4. obtained by dividing The m.ajority of respondents receive income from more than one source. Social Security payments are received by 145 out of the 263 respondents xAich amounted to 55.1 per cent of the sample. The Social Security officer for the State of Jalisco stated that 4,733 checks totalling $518,000 were sent out from the American consulate for the month of June, 1970. These payments were for Social Security, veterans' benefits, railroad retirem.ent benefits,

PAGE 95

-84and miscellaneous benefits paid by the United States federal government. Table 21 Illustrates the distribution of these payments. TABLE 21 RETIREMENT PAYMENTS PAID OUT BY AMERICAN CONSULATE FOR THE MONTH OF JUNE, 1970 Number of Amount in Average Type of Benefit Checks Dollars Payment Social Security 3,987 $399,511.74 $100.20 Veteran's Benefits 342 58,721.84 171.70 Railroad Retirement 254 31,877.25 125.50 Miscellaneous 49 9,924.17 202.53 Total 4,733 $518,475.86 $109.54 The Social Security officer estimated that about 35 per cent of the total amount paid or approximately $182,000 monthly was being paid to Americans living in Jalisco. However, he believes that at least another $200,000 per month is deposited to retirees' accounts in the United States so that all such payments to American retirees living in Jalisco amount to about $400,000 monthly. The total payments made in Jalisco have doubled approximately since 1967. In January of that year, the amount paid out totalled only $279,606 as compared to the $518,475.86 disbursed in June, 1970."'" Personal interview with Mr. J. D. Hamblet of the Ameri Consulate in Guadalajara on August 4, 1970.

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-85Over 55 per cent of the respondents indicated Social Security as one of their income sources, but, as can be seen from Tabic 22, dividends from stock and interest from bonds were mentioned almost as often 50.2 per cent of all respondents'.. TABLE 22 RETIREE RESPONDENTS' SOURCES OF INCOME Number of Percentage of all Percentage of all Source of Income (Ij Respondents (2) Respondents (3) Responses (4) Social Security 145 55.2 22.6 Dividends and Interest from Stocks and Bonds 132 50.2 20.6 Interest from Savings 92 34.6 14.2 Company Pensions 64 24.3 10.0 Government Pensions 57 21.7 8.9 Income from Real Estate 54 20.5 8.4 Savings 53 20.1 8.3 Income from Business 26 9.9 4.0 In U.S. 18 6.8 2.8 Railroad Pension 1 0.4 0.2 Total 641 a 100.0 Percentages do not add up to 100 per cent because many respondents gave multiple ansv;crs. Note: Values for column 3 v;ere calculated by dividing thos of column 2 by 263. Values for column 4 were calculated by dividing thos of column 2 by 641, the total of all responses.

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-86Questioa eleven was concerned with the monthly expenditures of the respondents. Of the 263 househoJ.ds interviewed, 1A5 (55.1 per cent of the total) were renting houses and 118 owned their own homes . Average (arithmetic mean) monthly expenditures were $443.60 for those who rented houses and $380.80 for homeowners. Many respondents had no maid, no gardner, and no medical or dental expense. There is a notable deficit of telephones in Mexico and only 27.8 per cent of the households sampled had them. Only slightly more than half of those interviewed (51.3 per cent) purchased clothing in Mexico and ansv/ers to question seventeen revealed that 84.1 per cent of those who go to the United States to make purchase do purchase clothing. As there V7ere 135 people who stated they bought clothing in Mexico and 138 respondents who go to the United States to purchase clothing, it is evident that very fev; of those sampled buy in both places. Although respondents were not requested to tell V7hy they do not purchase clothing in Mexico, there were comments made about Mexican clothing such as poor fit, poor styling, and being higher priced than American clothing. A check of prices in a number of stores in Guadalajara did not indicate any appreciable difference bctv;een Mexican prices and regular American prices for the same article. Good quality Mexican shoes, for example, were priced at from one-third to one-half of the price for comparable American shoes. There is a n^arked difference in prices, however, when Mexican prices are compared to American special post-seasonal sale

PAGE 98

-87prices. The. tendency to reduce prices for special sales is much less in Mexico than in the United States due, possibly in part at least, to the fact that there is, on the average, a smaller temperature change among the four seasons in Mexico with the result that 2 much the same clothing is v-orn the year round there. Some respondents reraarked that they did time their trips to the United States to coincide with the post-seasonal sales and this may be the reason \-ihy some retirees feel that American clothing is less expensive than Mexican clothing when the aforementioned examination of prices failed to reveal any large price differential betvceen them. To calculate the average expenditures in Mexico of an American retiree household for all items listed in the questionnaire, all responses were first totalled. An average was obtained for the number of respondents who had made these expenditures and another average was calculated for all 263 respondents. The values obtained in the latter calculation were then added to the expenditures common to all respondents. To these amounts were added rent to obtain the total expenditure for retirees renting houses or property taxes, v/ater, and household maintenance expenses to obtain the average expenditures for homeowners. Finally, the average expenditures for both renters and homeowners were weighted according to the number of respondents in each category and then combined to arrive at an average monthly See Chapter III for information on year round temperatures.

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-88expenditiures for £ill retirees. These values are presented in Tables 23 to 27. TABLE 23 EXPENDITURES COMj-ION TO ALL RETIREE Ri:SPONDENTS Type of Expenditure Amount Paid per Food $120.10 Entertainment 49.70 Gasoline 21.60 Car Maintenance 11.60 Electricity 7 AO Gas 5.00 Others 55.00 Total $271.00 TABLE 24 EXPENDITURES NOT COIHON TO ALL RETIREE RESPONDENTS^ Average per Percentage Respondent Average Type of Number of of all Making for all Expenditure Respondents Re spo ndents Expenditures Resp ondents (1) (2) T3") (4) (5j ~ Maid 187 71.1 $29.90 $21.26 Gardner 151 57.4 20.80 11.94 Mexican Clothing 135 51.3 17.60 9.03 Medical Expn.^ 208 79.1 16.40 12.97 Dental Expn. 149 56.7 5.30 3.00 Total $58.20 Rent, property tax, household repairs, and charges for water are not included. ^Hospital expense and doctors' bills are combined because it proved difficult for respondents to separate them. Note: Percentage in column 3 V7as calculated by dividing the

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-89number of respondents In column 2 by 263 respondents. Average expenditures of colunn 4 vrere obtained by dividing total expenditures by the number of respondents noted in column 2. Average expenditures for all respondents in column 5 were calculated by dividing total expenditures by 263, the total number of respondents. TABLE 25 EXPENDITURES ON HOUSING BY RETIREE RESPONDENTS Type of Expenditure (1) Number of Respondents (2) Percentage of Total Respond ents (3) Average per Respondent Making Expenditures (4) Rent 145 55.1 $94.00 Housing Maintenance 118 44.9 21.70 Property Tax 118 44.9 9.50 Water 118 44.9 2.10 TABLE 26 MEXICAN EXPENDITURES OF RETIREE RESPONDENTS RENTING HOUSES Expenditures A verage Amount Total from Table 23 $271.00 Total from column 5 of Table 24 58.20 Rent from column 4 of Table 25 94.00 Total $423.20

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-90TABLE 27 MEXICAN EXPENDITURES OF RETIREE HOMEOWNERS Type of Expenditures Average Amount Total from Table 23 $271.00 Total of column (5) in Table 24 58.20 Housing Maintenance 21.70 Property Tax 9.50 Water 2.10 Total $362.50 The average monthly expenditure in Mexico for the American retiree, homeowner or renter, was calculated as follows: Average Expenditure = $423.20 x 145 + $362.50 x 118 263 = $395.97 per month per household It would seem that at least the minimum income requirement of $320. per couple as stipulated by the Mexican government would be necessary for retirement in Mexico. On a yearly basis, approximately $4,800. is spent per household. From Table 19, it may be seen that 60.5 per cent of all respondents receive income of more than $6,000., while anouther 28.1 per cent receive an income which falls in the range of between $4,000. and $6,000. Although it cannot be assumed that there is an even distribution of the 74 respondents within the $4,000. to $6,000 income group, it probably can be said that from 65 to 75 per cent of those interviewed do receive sufficient income to be able to spend at the average expenditure rate for all households.

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-91What activities are popular with the American retirees? Table 28 indicates the order of popularity of all activities listed in ansvjcr to question twelve. TABLE 28 ACTIVITIES OF AIvlERICAN RETIREES IN JALISCO Activities (1) Number of Respondents (2) Percentage of Res pondents (3) Percentage of Responses (4) Travel 179 68.1 24.1 Church 157 59.7 21.1 Movies 140 53.2 18.8 Clubs or Organizations 116 44.1 15.6 Cards 86 32.7 11.6 Fish 50 19.0 6.7 Hunt 15 5.7 2.0 Total 743 a 99.9^ ^Percentages do not gave multiple answers. add up to 100 per cent because respondents ^Percentages do not add up to 100 per cent because of rounding off. Note: Percentages in colume 3 were arrived at by dividing those in column 1 by 263, the number of respondents. Percentages in column 4 were calculated by dividing the responses by the total number of responses. Each respondent was permitted to name as many activities as he desired. Those who go to the movies replied that they did so with the frequency shov/n in Table 29,

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-92TABLE 29 FREQUKNCY OF MOVIE ATTENDANCE BY RETIREE RESPONDENTS Frequency (1) Respondents (2) Percentage of Moviegoers (3) Percentage of All Respondents (4) Tu'ice a Week 10 7.1 3.8 Once a Week 64 45.7 24.3 Once a Month 66 47.1 25.1 Total 140 99.9'' 53.2 ^Percentages of rounding off. in column 3 did not total 100 per cent because It was surprising to the writer to find that nearly half of all respondents claiuied no affiliation with any church and that 175 (66.5 per cent) of the 263 respondents attended church less than once a month or not at all. That Mexico is predominantly a Catholic nation does not seem to have had any influence, positive or negative, on the retirees' decision to live in Mexico. Table 30 and 31 illustrate the distribtuion of responses to question twelve b. It should be noted that a larger percentage of the sample attend church than that which claims affiliation with some church. TABLE 30 CHURCH AFFILIATION OF RETIREE RESPONDENTS Af f i liation Number of Res pendents Percentage of all Respondents Protes tant 127 48.3 None 126 47.9 Catholic 10 3.8 Total 263 100.0

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-93TABLE 31 FREQUENCY OF CHURCH ATTENDANCE BY RETIREE RESPONDENTS Attendance Number of Respondents Percentage of all Respondents Every Sunday 63 24.0 Once a Month 25 9.5 Less than Once a Month 69 26.2 Do Not Attend 106 40.3 Total 263 100.0 Do the American retirees require much medical and dental attention? Information given in answer to question thirteen confirmed that they do visit the doctor frequently. Because of the relatively low rates charged, a number of respondents declared that they went only for annual or semi-annual checkups, however. The rates most commonly mentioned ranged from $4 to $6 per visit. While 79.5 per cent claimed to have visited a doctor at least once during 1969, only 39.1 per cent of the respondents had been confined in a hospital. Of these, 97 had gone to a Mexican hospital, while 11 retirees had gone to a hospital in the United States. Five of these 11 went only to an American hospital, but the other six went to both American and Mexican hospitals. IVo of the five who went to an American hospital were veterans of the Armed Forces who had gone to hospitals of the Veterans Administration where they had previously been treated.

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-94mos 1 The Mexico-American Hospital is the hospital in Jalisco ;t utilized by Americans, There, the writer was informed that a semi-private room with bath, would cost approximately $5. a day. It was the consensus of those interviewed that had been in the hospital that its facilities were adequate and that the personal service was superior to that they had received in American hospitals. Question fourteen was designed to measure the contribution to tourism which the American retirees in Jalisco make. It was thought that these people would be attracting visitors, both friends and relatives from the United States and possibly other countries. If this would prove to be the case, then the retirees would be making an additional contribution beyond that made by their personal expenditures. The answers to question fourteen disclosed that this group did indeed have American and foreign visitors. Two hundred and thirty of the 263 respondents (87,5 per cent) were visited by friends and relatives in 1969. Of the 230 who received visitors, 31 stated that they had foreign visitors from Canada, France, and Germany , There were a total of 1,731 visitors to the 230 respondents which meant that each household received an average of 7.5 visitors per year. An average of 6.6 visitors per year was obtained when considering all 263 households. If the sample which was taken is representative of the total population, this would indicate that each retiree household in Jalisco is responsible in part for causing 6.6 foreign tourists to come to this state. Admittedly, the fact that friends of relatives are living in Mexico is probably not a

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-96TABLE 33 RETIREE RESPONDENTS WIO HAD VISITORS IN 1969 Do or Do Not Have Visitors (1) Have Visitors From Countries Other than the United States Number of Percentage of Respondents Respondents (2) (3) 230 87.5 31 13.5 Do not have Visitors 33 12.5 Note: The percentage of respondents in column 3 for the principal categories, Have or Do Not Have Visitors, were calculated by dividing the values of column 2 by 263, the total number of respondents. The percentage for the sub-division. From Countries Other than the United States, was calculated by dividing the responses in column 2 by 230, the total number of those who said they had had visitors. sufficient condition alone to attract these tourists, but certainly it must be an important factor which is considered v;hen a decision as to where to go for a vacation is taken by a family. To determine the importance of the factor, it v?ould be necessary to interview the visitors themselves. In analyzing the contribution of the American retirees to the economy of Mexico, it will be assumed that they were responsible in great part for causing these tourists to visit Mexico. The respondents stated that their visitors remained an average of 12.7 days. Table 3A illustrates that many retirees received visitors at home, others entertained visitors v/ho stayed in hotels, and still others received some visitors who stayed in hotels and others who were invited to live at their homes. Also shown is the

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-97number of visitors who st.aycd in the home, and those who remained in hotels during their visit. TABLE 34 DATA ON WHERE. VISITORS OF RETIREE RESPONDENTS STAYED Where Stayed (1) Number of Respondents (2) Percentage of Respondents VJho Had Visitors (3) Number of Visitors (4) Percentage of all Visitors (5) Retirees ' Homes 112 48.7 1,113 64.3 Hotel 59 25.7 618 35.7 Both Home & Hotel 59a 25.7 Total 230 b 100.1 1,731 100.0 The respondents who indicated both home and hotel were requested to indicate the number of visitors who went to a hotel and how many stayed with them. ^The percentages do not add up to 100 per cent because of rounding off. Note: Percentages of column 3 were obtained by dividing the number of respondents in column 2 by 230, the total number of respondents who had visitors. Inasmuch as a] 1 of the visitors did not remain for the same length of time, a unit, visitor days, was employed. This v;as obtained by multiplying the number of tourists by the number of days which the respondents stated that these visitors stayed with them. By combining the number of tourists and their length of stay it is believed a truer picture of their relative importance is obtained. This should be a more useful unit of measure for firms in the tourist industry. A comparison of column 3 of Table 35

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with column 5 of Table 34 shov;s that the. visitors who stay in hotels are of even less importance when compared on the basis of visitor days . TABLE 35 VISITOR DAYS PER RETIREE RESPONDENT Percentage Visitor Days Average Number of Total per Respondent of Visitor Where Visitor Visitor VHio Had Days for all Stayed Days Days Visitors Respondents (1) (2) (3) (4) (5) Home 14,929 67.7 64.9 56.8 Hotel 7,135 32.3 31.0 27.1 Total 22,064 100.0 95.9 83.9 Note: Visitor Days in column 4 were calculated by dividing the values in column 2 by 230, the number of respondents having visitors . Average number of Visitor Days for all Respondents, column 5, was obtained by dividing the value in column 2 by 263, the total number of respondents. The data obtained from question fourteen can be further manipulated to shov? the average length of stay of the visitor according to whether he stayed in the home or at a hotel. The results of Table 36 shov; that the visitor x/ao stayed in the home tended to remain 1.9 days longer in the area than did the visitor vjho was lodged in a hotel. The object of questions fifteen, sixteen, and seventeen V7as to try to learn if there perhaps existed opportunities for local

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-99TABLE 36 AVERAGE LENGTH OF VISIT OF RETIREE RESPOITOENTS' VISITORS Average Length of Visit per Number of Visitor Where Stayed Visitor Days Visitors in Days (1) (2) (3) (4) Home 14,929 1,113 13.4 Hotel 7,135 618 11.5 Total 22,064 1,731 12.7 Note: Values in column 4 were calculated by dividing Visitor Days in column 2 by the number of visitors in column 3. industry to supply products or services which have not been offered up to now. Also, it vras hoped that it might be learned just how satisfied the retirees are in their new country. Any country or retirement community developer vjhich is investigating the possibility of attracting American retirees may find the answers to these questions and those of questions eighteen and nineteen to be informative . Three hundred and forty-eight responses were given in ansv/er to question fifteen covering 22 areas. Table 37 lists all points for which ten or more responses were given. The 22.4 percentage value for the 78 responses to the effect that the respondent missed nothing from the United States understates the importance of this answer since those who did not miss anything did not give multiple replies as did the majority of those who did feel that they missed something. On the basis of 263 respondents, these 78 responses represent 29.7 per cent of those intervievjed .

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-100TABL)'37 ;ffiAT RETIREES lIISvS MOST FROM THE UNITED STATES Item Missed Number of Responses Percentage Percentage of of all Pvespondents Responses Television prograns 87 33.1 25.0 Nothing 7C /o 29.7 22.4 Food 72 27. A 20.7 Friends and Relatives 21 8.0 6.0 Sports 11 4.2 3.2 Miscellaneous 79 30.0 22.7 Total 248 a 100.0 ^hese percentages do not add up to 100 per cent because many respondents gave multiple answers. Note: The Miscellaneous entry covered 17 different points, none of V7hich received a minimum of 10 responses. Such items as books, telephones, movies, libraries, and availability of luxury products were among those most frequently mentioned. Ninety of the 263 respondents (34.2 per cent) declared that they purchased imported American products. All of them, bought food items and three of the 90 respondents regularly purchased bourbon whiskey. Food products v/hich are unavailable in Mexico were mentioned such as canned cherries, cheddar cheese, and Carnation's non-dairy creamer. Scotch and Canadian v/hiskey are produced in Mexico, but bourbon is not as it is considered to be excessively sweet by most Mexicans. Mexico's extremely high import duties (up to 100 per cent ad valorem) cause these imports to be very

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-101expensive in the local market and therefore inaccessible to most retirees. Foreign exchange leakage due to the purchase in Mexico of American products is minimal as the average American retiree restricts these purchases to an occasional luxury food item. It is a very different situation, however, when foreign exchange leakages caused by the purchases made by Americans on their trips to the United States are considered. The respondents were questioned as to whether they went to the United States to make purchases and 164 of the 263 respondents (62.4 per cent) replied that they did do so. Clothing was the item most frequently purchased, as Table 38 indicates. The food purchased generally consisted of products not found in Mexico. As small appliances such as toasters, irons, and electric coffee pots are much more expensive in Mexico, these items are usually purchased in the United States. This is no problem in using them in Mexico as the current in Jalisco is 120 volts of 60 cycles. Nearly 4 per cent of those who do go to the United States to make purchases exchange their automobiles for newer ones. This is permissible for those retirees in the inmigrante-rentlsta category only, but as was mentioned in Chapter IV, special permission is required. An average of $683 per year per household was spent on the American side of the border. This does not include, of course, expenditures made in Mexico, while traveling to the border. All respondents queried travelled by automobile or bus.

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-102TABLE 38 ARTICLES PURCHASED IN THE UNITED STATES BY RETIREE RESPONDENTS Articles (1) Number of Responses (2) Percentage of Respondents Who Go To The United States (3) Perc en tags of all Re s D ond e n t s C4) Clothing 138 84. 1 52.5 Food 113 68.9 43.0 Small Appliances 56 34.1 21.3 Medicine 20 12.2 7.6 Automobiles 6 3.7 2.3 Total 333 • • Note: Percentage in column 3 v;as calculated by dividing the values in column 2 by 164, the number of people who go the United States to purchase, whereas the percentages in column 4 were obtained by dividing these same values of column 2 by 263, the total number of respondents. The responses to question eighteen followed somewhat those given to question eight; this is to say, the reasons why the retiree chose Mexico as a place to retire were most often what he liked about Mexico. Nevertheless, Table 39 demonstrates that after living in the country, the respondent has come to like things that were not the reasons which motivated his retiring there originally. Here, again, it is demonstrated that the climate of Jalisco and the cost of living are not the only attractions of this area as many writers and even government officials believe. It would appear that if a country, region, or retirement area developer wishes to attract the "Permanent tourist," the friendliness or likeability of that

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-103nation's people should be given prominence in its promotion. It is probably equally true that this same argument should be employed more than it is in promotion designed to bring in the regular tourist as well, TABLE 39 WIIAT RETIREES LIKE MOST ABOUT MEXICO What Respondents Number of Like Responses X. V^V — \ — J. 1 L.. C I w XAll Respondents JT e J. c 1 11 L age ujl Total Responses Climate 1A7 55 9 Mexican People 120 45 6 . o Cost of Living 109 41.4 1 R Q Slow Living Tempo 52 o c\ y . V Servants 50 1 Q n o . 1 Personal Security 26 9.9 4.5 Culture 19 7.2 3.3 Beauty and Scenery 19 7.2 3.3 Fresh Fruite and Vegetables 12 4.6 2.1 Clean Air 8 3.0 1.4 Travel Opportunities 8 3.0 1.4 Quiet 5 1.9 0.9 Parks 1 0.4 0.2 Total 576 a 100.0 Percentages do not add up to 100 per cent because respondents gave multiple ansv/ers ,

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-104lable 40 includes ail reasons for choosing Jalisco as a place to retire that vjere also given as being what the retirees like about Jalisco. It is interesting to note how the relative importance of these factors changed after the respondents had lived in Mexico for awhile. For example, climate seemed to be less important perhaps because the retirees had become accustomed to the excellent climate conditions and were now taking them for granted. The Mexican people rose to second place in importance, while the cost of living dropped to third place in the ranking. That American retirees appreciate the slow living tempo and the help of household domestics is evidenced by the fourth and fifth positions which they hold in the listing of what they like most about Mexico, This suggests that the emphases given by promoters of retirement projects to the slow living pace argument is substantially correct, but at the same time, it also suggests that promoters should make use of the fact that inexpensive domestic help is available in their promotion when in fact it is available. Because of the social connotations, this sales argument would have to be treated cautiously, of course, but it would seem from the importance given it by the respondents, that it is a significant factor. The availability of servants may even be more important than what the survey indicated because in nearly all households where a man was present, it was he who ansv/cred the questionnaire. As a rule, the male respondents did not mention servants, but when the wife responded either jointly with her husband or alone, there was a tendency for her to speak of the advantages of having domestic help. It is probable,

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-105then, that this factor is considerably more important to the average retiree household than that indicated in Table 40. TABLE 40 COMPARISONS OF REASONS FOR CHOOSING JALISCO WITH WHAT RETIREES LIKE ABOUT JALISCO AFTER LIVING THERE Reason for Percentage of What is Percentage of Coming Respondents Most Liked Respondents Climate 71.5 Climate 55.9 Cost of Living 21.7 Mexican People 45.6 Friend's Recommen11.8 Cost of Living 41.4 dations Slow Living 19.8 Liked Mexican 9.5 Tempo People Servants 19.0 Cultural Activities 6.5 Culture 9.9 Beauty and Scenery 6.1 Beauty and 7.2 Favorite Spot After 5.3 Scenery Visit Perhaps such a comparison as that made in Table 40 may not be valid as it should be noted that the retirees were much more articulate concerning what they liked about Mexico (576 responses) than they were in giving their reason for choosing Jalisco as a place for retirement (353 responses). It is suggested that it may be that time has dimmed the distinction between the reasons for coming and what the retirees now like. In fact, a number of respondents indicated this to be the case. There \:as considerably less consensus among those interviewed concerning their dislikes. Also, fewer replies were given by the

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-106respondents to the question concerning what they disliked than were offered about what they liked in Mexico. Of the 263 respondents, 214 mentioned 262 things which they disliked and this resulted in 1.2 responses per respondent who disliked something about the country. However, 576 replies about what they liked were given by all 263 respondents for an average of 2.2 replies per person indicating that the retirees were far more voluminous about what they liked concerning Mexico than they were about their dislikes. Only 49 of the 263 respondents (18.6 per cent) replied that there was nothing which they disliked about Mexico. Of the 21 things which they disliked, graft was most often mentioned. Forty -one of the 263 respondents (15.6 per cent) complained about graft. This is understandable when it is remembered that 164 of those interviewed declared that they go to the United States to make purchases. The law permits the Inmigrante-rentis ta to bring into the country a "reasonable amount" of food, clothing, and small appliances purchased outside of Mexico which are clearly destined for personal use and thus lends itself to interpretation by the customs inspector on duty at the time a retiree returns to Mexico. By some respondents' own admission, the quantity of articles which they bring in at times is large (one respondent termed it "exaggeratedly so"), and does lead to the preferring and acceptance of bribes. The other conditions about which the tourists complain are for the most part ones which will require education of the people, police, and government officials plus the passage of time before any noticeable changes are forthcoming. Areas where immediate

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-107govcrnmentsl action would possibly show more immediate results are those concerning graft and the clarification of the immigration laws, TABLE 41 WHAT RETIREES DISLIKE ABOUT MEXICO Number of Percentage of Dis likes Percentage of Responses Nothing 49 18.6 15 .8 Graft 41 15.6 13.2 Mexican Drivers 29 11.0 9.3 Poor Telephone Service 25 9.5 8.0 Lack of Sanitation 24 9.1 7.7 IJ) /-s /-V -vQoi~An C'i vT* ZKjKjL Ofc-i V JL. LI, JUlU 21 8.0 6.8 Tradesmen 20 7.6 6.4 Napoleanic Code 16 6.1 5.1 Food 16 6.1 5.1 Procras tination 16 6.1 5.1 Noise 15 5.7 4.8 Pickpockets 10 3.8 3.2 Condition of Highways 6 2.3 1.9 Immigration Law not Clear 5 1.9 1.6 Must Sell Car on 4 1.5 1.3 Becoming Immigrado Poverty 3 1.1 1.0 Going to Border Every 3 1.1 1.0 Six Months Cruelty to Animals 3 1.1 1.0 Power Failures 3 1.1 1.0 Catholic Influence 2 0.8 0.6 Total 311 a b 99.9 Percentages do not total 100 per cent because multiple responses were given. ^Percentages do not add up to 100 per cent because of round:

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-108Aithough 81.4 per cent of Lhosc interviewed had voiced one or more complaints about Mexico, many respondents did not feel that these complaints were sufficient reasons for not becoming inmigrados the status usually sought by those who have definitely decided to live permanently there. One hundred and twenty-one of the 253 respondents (46 per cent) intended to become inmigrados , 101 (38.4 per cent) stated they would not, and 46 (15.6 per cent) were already inmigrados . Therefore, 162 of the 263 respondents (61.2 per cent) either were or intended to become inmigrados . Those who did not intend to become i nmigrados gave the reasons listed in Table 42. for not wanting to do so. TABLE 42 REASONS GIVEN BY RETIREE RESPONDENTS FOR NOT BECOMING INMIGRADO Percentage of Percentage Percentage Number of Respondents Who of all of Reasons Respondents Gave Reasons Responses Replies _J1) (2) (3) (4) (5) Too Involved 33 32.7 12.5 31. 4 Expensive 30 29.7 11.4 28.6 Insufficient 26 25.7 99 Income No Benefits 9 8.9 34 Have to Sell Car 7 6.9 2 7 Total 105 ^ 24.8 8.6 6.7 ^Percentages in column 3 do not add up to 100 per cent because multiple anst'/ers were given. b Percentages in column 5 do not add up to 100 per cent because of round in p off

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-109Earlier in Lhis chapter, some of tlie survey data, were applied to the assumed population in an effort to check the validity of these assumptions and tlie validity of the sample. There it was estimated that approximately 1,500 American retirees living in Jalisco cannot meet the minimum income requirements to become inmigrante-rentis tas and thus must continue to remain in the tourist category. A further check may be made from data obtained in answer to question twenty. As shown in Table 42 above, 26 households of the 263 sampled, stated they would not become inmigrados because of insufficient income. As explained in Chapter IV, the minimum income requirements are no different for being an inmigrado than they are for being an inmigrante-rcntista ; that is, an income of $320 per month per couple is required to change from the inmigrante rentista status to the inmigrado status, once the five years' residence requirement is met. If the percentage obtained by dividing the number of respondents who do not intend to become inmi grado s because of insufficient income (26 from Table 42) is divided by the total number of respondents (263), the result is 9.9 per cent. Applying this 9.9 per cent to the estimated total household population of 7,222 results in approximately 7J5 households which, when multiplied by the 1.8 persons per retiree household value, results in approximately 1,300 persons who must remain tourists because they cannot meet the financial requirements. This value compares quite favorably with the 1,500 value obtained previously.

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CHAPTER VII APPLICATION OF SURVEY RESULTS TO THE TOTAL POPULATION As discussed in Chapter V, it vjas estimated that there are about 13,000 Americans retirees living in Jalisco who form approximately 7,220 households. Based on the assumption that the sample taken does represent the total population, certain results of the survey have been applied to the total population to obtain the following data concerning the American retirees in Jalisco: 1. Retiree population in Jalisco qoO 2. Number of households 7 220 3. Number of married households 5 300 4. Number of households in which at least one member has finished sixteen years of schooling or more 4,620 5. Number of households in which at least one member has had some college education 5 ^iq 6. Number of households with discretionary income ($6,000. or more) ^ ^JQ a b Monthly Annual 7. Total Expenditures in Dollars 2,888,000 34,656,000 a. Expenditures coitmion to all residents (Table 5.15) 0) Food 866,400 10,400,000 -110-

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-111Month ly Annual (2) Entertainnient: 358,800 4,306,000 (3) Gasoline 156,000 1,872,000 (4) Car Maintenance 83,800 1,006,000 (5) Electricity 53,400 641,000 (6) Gas 36,100 433,000 (7) Other 401,400 4,817,000 b. Expenditures not common to all residents, although the average for all residents has been employed (Column 5 of Table 24), (1) Maid 153,500 1,840,000 (2) Gardener 86,200 1,034,000 (3) Mexican-made clothing 65,200 782,000 (4) Medical Expense 93,600 1,123,000 (5) Dental Expense 21,700 260,000 c. Expenditure on Housing (Table 25) (1) Rent 373,900 4,487,000 (2) Housing Maintenance 70,400 845,000 (3) Property Tax 30,800 370,000 (4) Water 5^800 82,000 8. Number of Homeovmers 2 340 9. Number of households who attend the movies at least once a month 2 840^ a. IVice a week 270 b. Once a week 1,750 c. Once a month 1,810

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-11210. Number of houseliolds who claim affiliation vith a church , 3,760 11. Number of households who attend church at any time... 4,310 a. Every Sunday 1,730 b. Once a month 690 c. Less than once a month 1,890 12. Total annual visits to doctor 56,300 13. Total days in Mexican hospitals 28,900 14. Households who have visitors residing outside Mexico 6,300 15. Total annual number of visitors residing outside Mexico 47,700 a. Visitors v;ho stayed in retirees homes..,. 30,700 b. Visitors who resided in hotel 17,000 16. Total Visitor-Days 60,600 a. Visitor-Days for visitors staying in home. 410, 000 b. Visitor-Days for visitors residing in hotel 196,000 17. Number of households which miss food products from the United States 2 000 18. Number of households which purchase imported food P^'oducts 2,500 19. Number of households who go to the United States to make purchases ^ ^qq a. Clothing 3,780 h. Food 3,100

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-113c. Small appliances 1,530 d . Medicine 550 e. Automobiles 160 20. Yearly dollar amount s.pent in the United States •• 3,074,000 21. Number of households which intend to become inmigrados 3,320 22. Number of households who are inmigrados 1,130 23. Number of households which do not want to become inmigrados 2,770*^ a. Too involved 900 b. Expensive 820 c. Insufficient income 715 d. No benefits 245 e. Have to sell car 195 Expenditures of number 7 rounded to nearest hundred except the total expenditure value which was rounded to nearest thousand, ^Expenditures in number 7 rounded to nearest thousand. Total does not equal the sum of number 9 a, b, and c, because of rounding. •^Total number of households does not equal sum of 23 a, b, c, d, and e, because multiple responses were given. The group mentioned in number 6 would be important to marketers as the 4,370 households may be considered to be the minimum of those having some discretionary income. If the average annual expenditures, $4,000 , is added to the $700 , approximately, which is spent on trips to the United States, it is seen that families having an income of

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-114only $6,000 , still have $500 to spend or invest as they wish. Actually, of course, the number of households with discretionary income is much larger since the average annual expenditure already includes more than $1,000 for entertainment and "other" expenditures. Unfortunately, there is no way to estimate the total number of households receiving annual incomes of $5,000 or more unless it is assumed as in Chapter V, that there is an even distribution of inccMie in the $4,000 to $6,000 range. Admittedly, this is an extremely tenuous assumption to make, but if it is made, then it could be said that there may be as many as 75 per cent of all households with some discretionary income. Instead of the 4,370 households indicated in item six, there may be as many as 5,400 families in this category . It may be somewhat of a revelation to those connected with the tourist industry in Jalisco to learn that each American retiree household is potentially responsible, at least in part, for attracting 6.6 tourists per year and that nearly 48,000 of these tourists visited Jalisco in 1969. Since it was not within the scope of this study to obtain information on the expenditures of these tourists, no data on this particular group are available; however, according to the Department of Economics Studies of the central bank of Mexico, Banco de Mexico, each American tourist (Mexican national residing outside of Mexico who visit Mexico as tourists were treated separately) spent an average of $13.6 per day in 1967, the last year for which data are available. This was an increase of fifty cents per day over the average of $13.1.

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-115per day spent in 1965. A lineal projection of this trend to 1969 would result in an average daily expenditure of $14.1. According to the aforementioned report, the average length of time that the foreign tourist remained in Mexico was 15 days, 2 but those who arrived by airplane remained only 13 days. This last value compares favorably with the average lenth of visit of 12.7 days found in this study and reported in Chapter V. It is highly probably that the expenditures of the visitors who remain in hotels is similar to those for tourists in general. If this is assumed, then the 17,000 tourists who resided in hotels vjhile visiting the retirees should have spent approximately $14.1 each for a total of 11.5 days. This would total approximately $2,757,000 annually. In a survey made in 1968, the Department of Economic Studies found that approximately 27.4 per cent of the foreign tourists' expenditures in Mexico was spent for hotel accomodations. Based on the average daily expenditure of $14.1 per day, this would amount to about $3.9 per day. It might be assumed that the 30,700 visitors who stayed in the homes of the American retirees would have spent $14.1 daily less the average amount spent for hotel accomodations ($3.9.) or $10.2 per day, but is is probably true that the visitors Departamento de Estudios Economicos, Banco de Mexico, S.A., "Los Efectos del Gas to de los Turistas Residentes en el Exterior Sobre la Economia Mexicana," Mexico City, 1969., p. 8. (Unpublished report for internal use only). 2 I dem , p. 5 . ^Idem , p. 40.

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-116spend some additional quantity for gifts or entertainment for their hosts which would partially compensate for the amount not spent for hotel rooms. Assuming that the amount they spend is one-half of the amount which would have been spent for hotel accomodations, then their daily expenditures would average about $12. The results of this survey show that the visitor who stayed in the home of their hosts remained an average of 13.4 days. The total spent by these visitors should be approximately $4,937,000 annually. Thus it may be said that the American retirees are responsible for the fact that 47,700 tourists visit Mexico every year and spend nearly $8,000,000 There is every reason to believe that this quantity may be greater than $8,000,000 since it is possible that these visitors travel to other regions in Mexico while they are in the country. Item 18 points out that about one-third of the Ajnerican retiree households purchase some imported food products and although the amount spent was not ascertained, it was gathered from the comments of those interviewed as well as from visits to supermarkets to see the imported food products available, that these expenditures were not large. Remarks to the effect that an occasional can of cherries or blackberries was purchased along with a jar of a non-dairy cream substitute were quite common. Certainly the amount spent on these items would not constitute over 5 per cent of their total food bill. If this is true and it is further assumed that these products suffer an average markup on the selling price of 100 per cent as they move through the channels of distribution, the landed value of these food products might equal approximately $260,000. However, the import

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-117duties and import expenses will constitute about one-half of this value, so that probably not more than $130,000 in foreign exchange is spent annually for the importation of these items. The estimated $3,074,000 which the retirees spend annually during their trips to the United States cannot properlj' be considered a leakage in its entirety since this is exchange which, in most instances, never has been converted to local currency. It does represent a sum of money of which part could be induced to enter Mexico, however, if the products which are purchased on these trips were available in the quantity and at the prices which the retirees wish to pay. After having discussed this point with various respondents, the writer is convinced that even if the above conditions concerning the products were met, a large number of retirees would continue to make these trips and the corresponding purchases because for many, they represent a welcome change from the daily routine and an opportunity to visit friends and relatives. A portion of the $3,074,000 mentioned above probably is a true leakage of foreign exchange if the dollars to make these purchases were bought with pesos earned on investments made in Mexico. As explained in Chapter IV, if the prospective inmigrante-rentis ta does not receive sufficient guaranteed income from sources outside Mexico to meet the minimum requirements, he may make government approved investments in Mexico. As will be shown later in this 4 Percentage of import duties and expenses are based on the writer's experience in importing similar products into Mexico.

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-118chapter, many retirees have invested locally, and to the extent that income from these investments is used to buy dollars for these trips, to that extent then, the amount spent is a true foreign exchange leakage. This quantity is not known and probably does not represent a large share of the total amount spent. For this reason, the expenditures of the American retirees on their trips to the United States were not considered to constitute a foreign exchange leakage, but rather an indication of what is being lost to Mexico partly because of real and imagined advantages to buying American made products. It is felt that nothing short of a complete restriction on the entrance of these purchases to Mexico vrould be effective in reducing this "loss." However, the additional exchange would be gained at the expense of incurring the ire and animosity of this important group and thus the disadvantages of such a restriction seem to outweigh its advantages. In time, as the product lines of the Mexican food and clothing industries widen, deepen, and improve in quantity, undoubtedly less will be purchased outside of Mexico. Item 23 demonstrates that it is probably vjithin the Mexican government's power to change the conditions which caused the responses in ansv.'er to question 20. The replies to the question indicate that nearly one-third of all of the American retiree population does pot intend to become i nmigrados . The reasons why they do not are also stated. The expenditures listed in item 7 are recurring expenditures, but there are also important sums of money spent for non-recurring expenses. From the schedule of fees in Appendix B, it can be seen that

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1 *7 -119the Mexican government charges about $300. per couple for admittance to the country as inmigrante-rentis ta . A specialist in assisting the retirees to process their papers informed the writer that he charges an average of $200 per couple. Therefore, the average retiree household consisting of 1.8 persons per household will spend approximately $450 to obtain permission to enter Mexico.^ Based on the assumption that there are around 10,500 American retirees in Jalisco who are either inmigrantes or inmigrados who previously were inmigrantes and employing the 1.8 persons per household factor obtained in the survey, there are approximately 5,830 retiree households who have paid these fees which total $2,624,000 Of the total, approximately $1,574,000 went to the Mexican government to pay their fees. Information from the survey (Table 5.6) indicates that 22.1 per cent of all retiree households or approximately 1,290 entered Mexico in 1969. If this value is correct, then these retirees spent $580,500 that year to obtain the inmigranterentis ta status. In Chapter IV, it was explained that the inmigrante-rentis ta must renew his status annually. Fees for this service average about $50. per couple of which $16 per couple are paid directly to the Mexican government. Again these values must be adjusted for the fact that there are, on the average, 1.8 persons per household so that an average of $45 per household is paid for the renewal of status of Personal interview held in Guadalajara, Jalisco on August 4, 1970.

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-120which $14.40 are paid to the Mexican government. Of the 5,830 families which are estimated to be either inmigrados or inmigrantes , about 1,130 were inmigrados when this survey was taken (Item 21 in this chapter). Then 4,500 households (5,830 1,130) are inmigrantes rentistas who must have paid in 1969 a total of $225,000 . in fees of which $72,000 covered those charged by the Mexican government. To change from the inmigrante-rentis ta status to that of inmigrado is more involved and more costly. The average fee charged by the specialist for handling this process is $80.00 per couple. An additional $64 per couple must be paid in fees to the government. These fees when adjusted by the factor of 1.8 persons per household, amount to $72 and $57.60 per average household respectively. Thirty-two of the 41 inmigrados interviewed (78 per cent) had become inmigrados within the last five years. Applying the 78 per cent factor to the estimated total population of 1,130 inmigrado households results in about 880 households who have changed to this category within the last five years. The total amount paid by the 880 households to attain this status should be around $114,000 or approximately $23,000 annually of which probably $10,000 has been paid for governmental fees. There are still two other large expenditures which many American retirees make in addition to those already mentioned. Table 25 in Chapter VI shows that 44.9 per cent of the households sampled own their own homes. This would indicate that about 2,340 of the total household population are home oraers . The amount paid for each home was not asked of each respondent although a few families gave this Information voluntarily. However, an investigation of prices was made

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-121by consulting realtors and other knowledgeable people. House and lots comparable to those most frequently encountered during the survey ranged in price from $8,000 to $10,000. If a value midway in this range, $9,000 , is assumed to be the average price paid for a house and lot, then the retiree home owners in Jalisco should have spent a total of approximately $21,060,000 for housing. From the survey conducted, it was learned that 35 of the 58 respondents (60.3 per cent) who arrived in 1969 had purchased a home. Applying this result to 1,290, the total number of families estimated to have arrived in 1969, then about 780 families should have purchased houses and lots that year at an average value of $9,000 each for a total expenditure of $7,000,000. It was explained in Chapter IV that the inmigrante-rentis ta may bring his automobile with him, but when he changes his status to that of inmigrado , he must dispose of his car in the United States. If he then wants to own an automobile after becoming an inmigrado , he must purchase it in Mexico where prices are about 50 per cent higher than American prices. Although the inmigrados were not requested to disclose the amount they had paid for their automobiles, it is believed that the prices probably ranged from $3,000 to $4,000. Small cars such as the Datsun and Volkswagon are available at these prices as are used Mexican-made American brands. While the law states that an inmigrante-rentista who has lived In Mexico in this category for five years may become an inmigrado , in practice, as many as six or even seven years may pass before this status is actually granted. This would indicate that those who came

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-122to Mexico in 1963 are those most likely to have attained this status in 1969. However, not all who are eligible to become inmigrados want to change. Slightly more than one-half of the inmigrante rentistas interviewed (54.5 per cent) replied they do not intend to change when they become eligible. There were a total of 75 inmigrante rentis tas in the sample who had arrived in Mexico by 1963 or earlier and, of these, 41 respondents (54.6 per cent) are inmigrados . This would seem to indicate that this same percentage value could be applied to the 9.1 per cent of the total retiree population who arrived in 1963 to obtain an estimate of those who actually became inmigrados in 1969. The result of this calculation indicates that perhaps as many as 350 households did change to this status and therefore had to purchase automobiles in Mexico. If an average purchase price of $3,500 per automobile is assumed, then this group of retirees must have paid approximately $1,225,000 to purchase their cars. The total of the items described above should indicate the total expenditures of the American retiree population in Jalisco which, when added to their visitors' expenditures, must reveal the total expenditures for which this important group is responsible. There are however other contribtuions made by the retirees which are not measurable in dollars and cents, but which are real contributions, nevertheless. For example, a number of respondents reported paying for schooling for their maids' children. Some even paid the rent for their houses. These expenses were not included in the wages paid to the maids .

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-123TABLE 43 TOTAL PRIMARY EXPENDITURES IN 1969 FOR WHICH AMERICAN RETIREES IN JALISCO ARE RESPONSIBLE Recurring Expenditures $34,656,000 Non-recurring Expenditures To become inmigrante-rentis ta $2,624,000 Renewal of status 225,000 Change status to inmigrado 23,000 Housing purchases 7,000,000 Automobile purchases 1,225,000 Total Non-recurring Expenditures 11,097,000 Total Recurring and Non-recurring Expenditures 45,753,000 Expenditures of Retirees' Visitors 7,694,000 Total Expenditures of Retirees and llieir Visitors $53,447,000 The writer met a group of American retirees who sponsor and actively promote the Guadalajara Symphony. Through contributions and receipts from concerts which they sponsor, money is reased to purchase expensive instruments. Obviously, all residents of Jalisco interested in this type of music benefit from their work. It was found that many retirees are actively engaged in local charities and would do more if they were permitted by law to do so. Here is an area v^here the Mexican government has failed completely to take advantage of an opportunity which few, if any, other nations ' have. As mentioned previously, the great majority of the American retirees in Jalisco are college graduates, and most have had years of experience as executives and technicians. Here then is a large group of people possessing in the aggregate thousands of years of experience

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-124of the type desperately needed by Mexico and other lesser developed nations. Various respondents lamented the conditions which they see around them and expressed the desire to contribute their skills. These people do not require high wages, they are already acclimated to the country, and many speak Spanish sufficiently well to be able to communicate. It is somewhat ironical that many Mexican firms go to great expense to bring in foreign technicians who often may be less qualified than many of the retirees. These technicians must be paid in foreign exchange whereas the retirees would accept Mexican currency . That the retirees' skills might be advantageously utilized has been suggested to various government representatives and it may be that in the near future, these people will be called on to lend assistance where needed. Certainly this important external economy should not be overlooked by any nation contemplating a plan similar to that of Mexico.

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CHAPTER VIII MEXICAN INVESTMENTS OF AMERICAN RETIREES Additional commenLary is required concerning another important contribution to the Mexican economy made by American retirees--their investments in Mexico. As explained in Chapter IV, a retiree who cannot prove that he is receiving the minimum monthly income from sources outside of Mexico can still meet the income requirements by making government approved investments. Attempts were made to ascertain the total amount invested by American retirees for this purpose from various bank officials, but none of those interviewed vjould give any indication as to the sums of money involved. Inasmuch as thousands of American residents transfer funds to these banks by mail for the purpose of investments, it may be that these banks do not normally distinguish between these investments and those made by the retirees. This may be true even though the banks must provide a letter to the retiree stating either that he has invested sufficient funds which permit him to receive monthly income at least equal to that required by law or a lesser amount if the retiree has invested only sufficient funds so that the income derived plus other income received from outside Mexico equals the minimum required by la^^7.

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-126Although this information was unavailable at the banks, it did appear that the previously mentioned files of the specialist assisting American retirees might provide a basis for estimating the amount which the retirees have invested if his clients were representative of the total population. There appeared to be no special reason why these retirees had chosen him to handle their cases rather than some one else. His fees are similar to those charged by others performing the same service in Guadalajara, and he was equally well recommended by those with whom the writer spoke during the preliminary investigation. Data were taken from alternate files until all of his 244 active files had been examined. The areas of residence of his clients were varied as were their incomes. Of the 122 files sampled, 89 (73.0 per cent) belonged to residents of Guadalajara. The standard deviation calculated from thesedata was found to be "t 4 per cent. From this it may be said that, at a confidence level of 68 per cent, between 69 and 77 per cent of the retirees for whom the specialist maintains files, live in Guadalajara. This value is similar to the 76,8 per cent value used in the survey. Thirty-nine households of the 122 for whom data were taken (32.0 per cent) had invested a total of $931,000 in government approved investments for an average of $23,782 per household. In Chapter V it was explained that there appear to be about 10,500 legal retirees in Jalisco. Applying the value of 1.8 persons per household found from the survey to these 10,500 legal retirees indicates that there should be approximately 5,830 households whose

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-127members are either inmigrantes or inmigrados . If it is assumed that the retirees whose files were examined are representative of the total population, then it may be said that approximately 1,865 households (32.0 per cent of 5,830) have invested a total of nearly $45,000,000 in mortgage bank certificates, private investment bank bonds or in obligations of Nacional Financiera, the federal government investment bank. This amount may be unders tated since the letters given to the inmigrante investor are required to state only that the monthly income is at least equal to the required minimum. There are no limitations on the maximum amount which the retiree may invest in these relatively high yield bonds and certificates. In f^ct, four of the 39 households mentioned above had received letters specifically stating that their monthly incomes from these investments were higher than the minimum required. That these investments are a real contribution to the economic development of Mexico is without question, since these funds are in turn loaned for real estate development (including low cost housing) in the case of mortgage banks, or for industrial development when deposited with investment banks. As was mentioned in Chapter IV, the bank officials interviewed estimated that about 60 per cent of all financing of the private sector is carried out by these same industrial banks. Investments of this type are especially welcomed by the Mexican government since they are important sources of foreign exchange, but more important, they are portfolio investments. This is to say, as may be seen by the estimate of the amount invested by American

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retirees in Jalisco, larye siinis of money have been placed at the disposal of various banks which have then been loaned to industry without having the control of any industry using these funds pass from the hands of the Mexican owners. Mexico, in effect, ends up with the best of both v;orlds or as Professor Salera writes: Implicit in this preference for portfolio investments, of course, is the hope that their countries will wind up with the best of both worlds --foreign capital in good volume, plus local "control" over the deployment of the capital, ' Virgil Salera, Multinational Business (Boston: Houghton Mifflin Co. , 1969), p. 44.

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CHAPTER IX THE ECONOMIC IMPACT OF THE RETIREES' PRIMARY EXPENDITURES In Chapter VII, the survey results were applied to the total populatiai and estimates V7ere made as to the total expenditures of the American retirees in Jalisco for the year 1969. However, this is not a true measure of the economic impact of these expenditures. Harry G. Clement who is an executive of Checci and Company, an economic consulting firm in Washington, D. C, which made a study of the economic impaxt of tourist expenditures in 17 Far Eastern countries, writes: As money brought into an economy by tourists is spent and respent, it generates additional national income. . . .How can we measure the economic impact of the money that tourists spend? Typically, this is done by simply citing estimated expenditures by tourists and letting it go at that. .. .Everyone knows that the money spent by tourists does not stop moving after the tourist spends it. Instead, it circulates through the economy. The more times it changes hands and the more times it is spent, the greater the economic impact on the econoniy. This "turnover" or "multiplier" effect of the money that tourists spend varies from economy to economy, ^ but it can be measured or at least approximated. Harry G. Clement, "The Impact of Tourist Expenditures," Developmen t Digest, V (Jjly, 1967), p. 70. -129-

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-130ClemenL believes that v;ithin a twelve-month period, the money spent usually has ceased to have any significant impact on the economy because of the leakages which occur when money leaves the economy to buy imported goods or when it no longer moves within the economy. For countries such as Cambodia and Tliailand who, in his opinion, suffer substantial leakages and slow turnover, it was estimated that the value of the multiplier would be approximately 3.2 to 3.5. To be conservative, he writes, a multiplier of 2 3.2 was used in his calculations. The data on the retirees' expenditures obtained from this survey were given to the economists of the Department of Economic Studies of the Banco de Mexico, Mexico's central bank. Based on information in their possession, the multipliers shown in Table 44 were calculated. ITiese are multipliers for a twelve-month period during which it was assumed that there will occur five transactions 3 such as was assumed in the Checci report. The five transactions per year value is considered to be an extremely conservative assumption for Mexico by the Banco de Mexico economists, however. The multipliers from Table 44 were applied to the expenditures shovm in Tables 23, 24, and 25 for the purpose of arriving at a single multiplier for the homeov/ner's expenditures and the renter's ^Ibid, p. 71. ^Ibid, p. 78.

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-131TABLE 44 MUT^TIPLIER EFFECT OF RETIREE EXPENDITURES ON VALUE ADDED Expenditures Value of Multiplier Expenditures Valuc! of Multiplier Food 3 .32 Gardener 3 . 28 Entertainment 3.31 Clothing 3.09 Gasoline 2.94 Medical Expense 3.28 Car Maintenance 2.90 Dentis t 3.28 Electricity 2.50 Rent 3.28 Gas 2.94 Water 3.28 Other 2.90 Housing Maintenance 3.10 Maid 3.28 Note: No attempt is made to assign a value to the expenditure on property tax since these funds may be put to various uses by the government . Source: Information received during a telephone conversation from Mr, Pedro Donde, economist with the Department of Economic Studies, Banco de Mexico, Mexico City, Mexico, March 17, 1971. expenditures. The multipliers were found to be 3.195 and 3.168 respectively for the renters' and home owners' expenditures. ITiese then were weighted by the number of home owners and renters found 4 m the survey for the purpose of obtaining a single multiplier, 3.18. Sec Appendix D for calculations.

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-132It was explained in Chapter VII that in 1969, the American retirees received foreign visitors who are estimated to have spent approximately $8,000,000. The Department of Economic Studies of the Banco de Mexico has calculated the short term (one year) multiplier for these expenditures to be 2.98. Table 45 shows the individual multipliers for value added for the six categories of the expenditures v;hich were considered. TABLE 45 MULTIPLIERS FOR TOURISTS EXPENDITURES ON VALUE ADDED Expenditure Multiplier Hotel 3.06 Food, Drink, and Tobacco 3.01 Entertainment 3.02 Local Transportation 2.80 Purchase of Merchandise 2.84 Other Expenditures 2.95 Average Multiplier 2.98 Source: Banco de Mexico, S.A., "Los Efectos," p. 14. Because the short term multiplier does not consider the investment induced by the increase in the external demand for food and services, a long term multiplier has been calculated which does take investment into account. An assumption is made that there is no ideal productive capacity and that a period of over two years is

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-133required for the investments to be carried out. For each increase of $1,000 in the demand by tourists for goods and services, it is estimated that a total increase in income of $6,552 will result (i.e., the long term multiplier is 6.55). Figure 3 is a flow chart whose values were calculated by the Department of Economic Studies to illustrate how the multiplier of 6.55 is obtained.^ It is the opinion of the economists from the Banco de Mexico that a similar long term multiplier can be estimated for the retirees' primary expenditures by multiplying the short run multiplier calculated for the retirees' expenditures by the ratio of the long term multiplier to the short term multiplier for tourists' expenditures. If this procedure is followed, the long term multiplier for the retirees' expenditures is then 7.13 (3.18 x 6.5 ) . 2.9 Combining the above mentioned multipliers and the primary expenditures and tourist receipts as calculated in Chapter VII, it is now possible to estimate the economic impact of the American retirees in Jalisco on the economy of Mexico. These results are shown in Tables 46 and 47. If the data were available, it should be possible to calculate an additional multiplier for the estimated $45,000,000 invested by the American retirees in Mexico. Unfortunately, to estimate this 5 Banco de Mexico, S.A. , "Los Efectos p. 21.

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-134r-4 0^
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-135niultiplinr v;ould require another survey of the principal mortgage and investment banks of Mexico. lliis is clearly beyond the scope of the present study. TABLE 46 SHORT TERl^I ECONOiMIC IMPACT OF RETIREES' EXPENDITURES (U.S. DOLLARS) Primary Expenditures Kind Amount Multiplier Economic Impact Retirees' Expenditures 45,753,000 3.18 145,495,000 Visitors' Expenditures 7,694,000 2.98 22,928,000 Total 53,447,000 168,423,000 TABLE 47 LONG TF.m ECONOMTC EXPENDITURES IMPACT OF RETIREES (U.S. DOLLARS) Primary Expenditures Kind Amount Multiplier Economic Impact Retirees' Expenditures 45,753,000 7.13 326,219,000 Visitors' Expenditures 7,694,000 6.55 50,396,000 Total 53,447,000 376,615,000

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CHAPTER X CONCLUSIONS It would seem from the results obtained in this study as summarized in Tables 46 and 47 of Chapter IX that the hypothesis postulated on page one, that the sale of goods and services to the foreign retirees in the State of Jalisco make an important and meaningful contribution to the economy of Mexico, has been proven to be true. As stated in the tables mentioned above, the short term economic impact is approximately $168,000,000 , while the long term impact is nearly $380,000,000. It should be noted that the multiplier effect of the retirees' expenditures is even greater than that for the expenditures made by tourists. Officials of the Mexican Department of Tourism estimate roughly that there are approximately 30,000 American retirees in all of Mexico. This would indicate that as many as 17,000 of these people live outside of the area in which this study was conducted. If their expenditure patterns can be assumed to be similar to those of the retirees residing in Jalisco, the total impact of this important group might reach $390,000,000 for the short and $865,000,000 for the long term. Their total primary expenditures would probably be about $125,000,000-136-

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Howcvcx", there is little doubt that their most important economic contribution is the foreign exchange v;hich they make available through their expenditures and their investments. The economists in the Department of Economic Studies of the Banco de Mexico confirm that the expenditures of foreign tourists are an important source of foreign exchange which Mexico must have to pay for imported raw materials and capital equipment not yet produced in the counti-y. Without these sources of foreign exchange, they acknowledge that either Mexico's foreign indebtedness would be higher or the level of investment would be lower which would result in a slower growth rate for the economy. ''^ Second in order of importance is the fact that the money which they have invested is in securities of the developmental type. They provide funds badly needed in the development of essential industries and for low-cost housing. There is no question but that further research is needed concerning the contributions of the retirees. When data from the 1970 Mexican industrial census are available, it will be possible to measure the net foreign exchange earned by this industry. It may also be worth while to study the multiplier effect of the retirees' investments in Mexico. Certainly, a study of the foreign retirees in all of Mexico should be undertaken. There arc Departamento de Estudios Economicos, Banco de Mexi "Los Efcctos," p. 15.

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-138indications that this last mentioned study may soon be made by the Department of Economic Studies according to information received by the writer from economists of that department. Already, one other country, Costa Rica, has established immigration categories and income requirements for retirees which are similar to those in Mexico. A large land development firm in this country is building a retirement city on the Pacific coast and has begun to announce the sale of lots in American newspapers . Hopefully, both the tourism and travel industry and the "permanent tourist" industry will be given the importance they seem to merit. Recently announced plans by various lesser developed nations, some of which were mentioned in Chapter II, seem to indicate that this will indeed occur.

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APPENDICES

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A QUESTIONNAIRE USED IN SURVEY I want to thank you for your assistance in answering this questionnaire. The dataare being used for scientific purposes and you will remain anonymous at all times. Our interest is in the sum total of all the information and not in the information of any one person. 1 Male Female 2 Married Single 3 Age: 44 & Under^ 45-49 50-54 55-59 60-64 65-69 70-74 75 & Over 3a Last year completed in school 4 What year did you retire? 5 From what state in the U. S. did you retire? 6 Last occupation 7 Did you retire directly to Mexico? Yes ^No If not^ in what year did you arrive 8 Why did you choose Jalisco? 9 What is your approximate present yearly income? $4000 or less_ $4000/$6000_ $6000/$8000 $8000/$10,000 $10,000/$16,000 $16,000/$20,000 $20,000 and over 10 What are the sources? From: Social Security _Business in U. S. ^Military pension Company pension_ Interest from savings ^Government pension ^Real Estate Savings Railroad Pension Dividends from stock and/or interest from bonds -140-

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Monthly expenses: Housing ^Rent Own Property tax ^Mald Personal care t'o O'^l Ga rd e ne r Te 1 e ph on e E 1 cc t r i city Entertainment Gas ^Gasoline Doctor ^IJater Car repair ^Dentist Other ^Clothing What activities do you engage in or participate in here? a. Entertainment: Hunt Fish Travel Cards Movies : 1 a month 1 a \
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B ITEMIZED CHARGES BY MEXICAN GOVERNMENT FOR GRANTING IN^IIGRANTE-RENTISTA STATUS-*" REQUIREMENTS AND PROCEDURES FOR PERSONS WHO WISH TO RESIDE IN MEXICO ON A PERMANENT INCOME BASIS (INMIGRANTES RENTISTAS ) REQUIREMENTS . A recipient of fixed income, to live in Mexico, must prove that he has a permanent and lawful source of income earned abroad. He may not accept employment or engage in remunerative activities in Mexico; however, legal investments may be authorized under certain conditions, provided that the minimum-income requirements are not affected. MINIMUM INCOME REQUIREMENTS . A person under this category (rentista), must have a minimum income of 3,000. Pesos (equivalent to $240. U. S. Cy. at the official rate of exchange of $12 50 Pesos per Dollar) per month for himself, plus 1,000. Pesos per month for each dependent member of his family 15 years of age or older. Proof that this minimumincome requirement can be met for five consecutive years is required when filing the application. THE APPLICATION. must be filed in writing, and must be accompanied by a letter of good conduct covering a period of five years, issued by the local Police authorities; and documentary proof of the minimum income requirements above enumerated. Applications should be addressed to the Consul of Mexico with jurisdiction in the district where the applicant resides. The application is then referred to the Mexican Immigration authorities in Mexico City, for final processing, which requires approximately 90 days . <^ <^ j From mimeographed sheet, "Requirements and Procedures for Persons Who Wish to Reside in Mexico on a Permanent Income Basis (Inmigrante-Rentista)," Mexican Embassy, Washington, D.C. no date -142-

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-143Immigrants under this category may import one automobile into Mexico, Free of duty. However, the importation will be considered as a temporary one as far as customs procedures are concerned, and the automobiles may not be sold in Mexico. The rentista may trade this automobile abroad for a newer model, subject to previous authorization of the Department of the Treasury (Secretaria de Hacienda y Credito Publico). They may also import their household goods free of duty, provided all items have been in use prior to the date of entry, and are not in excessive quantities. A list of such items must be certified by the corresponding Consul of Mexico after the entry of the alien is authorized. FEES . Immigrants are subject to a payment of $102.88 U.S. Cy. to cover the Immigration Tax (Applicable to all persons regardless of age), plus a visa fee of $8.12 in the case of citizens of the United States. Other applicable fees are as follows: $16.00 for the certification of the list of household items to be taken by the immigrant; $4.00 for the authentication of the good health certificate; and $4.00 for each additional authentication of documents that may be required, such as birth and marriage certificates, etc . DOCUMENTS REQUIRED . A valid passport and six front and five profile photograph s on a V7hite background, 2" x 2" will be required for obtaining the necessary visa and entry documents. Tlie application must indicate the city or to\m where residence is to be established. The sum of $4.00 U.S.Cy. must accompany the application for a certificate of verification of documents submitted. All documents pertaining to economic solvency must be notarized, then certified by the authority (County Clerk, etc.) who has charge of Notaries appointments, and then legalized by the corresponding Mexican Consul; these must also be translated into Spanish by an expert translator, his competence attested to be the appropriate authority and the latter 's signature legalized by the Mexican Consul having jurisdiction. The legalization fee for each signature: $4.00 U.S.CY. A New York Bank Draft, payable to "Secretaria de Relaciones Extcriores de Mexico", in the amount of $1.65 U.S.Cy., for each legalized document. The Mexican Embassy in Washington, D.C. has Consular jurisdiction in : District of Columbia, Maryland, North and South Carolina, Virginia, and West Virginia LFC /mec

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c TO LIVE IN MEXICO ON A PRIVATE INCOME BASIS UlNlDER A SPECIAL NONIMMIGRANT CLASSIFICATION There has recently been established a special non-immigrant permit("NO INMIGI^TE RENTISTA") -under Section III or Article 50 of the Mexican Immigration Law, specially for United States and Canadian citizens who vjish to enter Mexico to live on a private fixed-income basis. The requirements are as follows: The persons (head of household) must be 55 years of age or older; They should have an income of at least $160. U.S.Cy. per month for the head of the family and an additional $80. U.S.Cy. per month for the spouse and an equal amount for each child 15 years of age or older or dependent unmarried daughter. Proof of such income and that is derived from a source or sources outside of Mexico, must be substantiated documentary and duly notarized; Presentation of Certificate of Police; Valid Passport is required; 3 front regular passport photographs will be required for each person; Immigration Tax fee is $5 U.S.Cy. per person 15 years of age or older; no passport visa fee is prescribed. Validity of the above non-immigrant perait is for six months, good for multiple entries within said period of time. It can be renev7ed three times, each time for six Eionths upon payment of the same immigration tax as originally charged. However, at the expiration of the last revalidation the person has to leave the From mimeographed sheet, "To Live in Mexico on a PrivateIncome Basis Under a Special Non-immigrant Classification," Mexican Embassy, Washington, D.C . , no date. -144-

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-145coLintry but may reapply for a new perciiL on the same basis of originally, unless change of immigration status has been granted. Persons under this particular classification may take their own automobile on a temporary permit basis without the posting of a bond; but do not have the privilege of taking their household good and effects duty-free. This class of non-immigrant is prohibited from engaging in any remunerative or lucrative activity.

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D CALCULATIONS FOR OBTAINING A SINGLE MULTIPLIER Item (1) Expondi ture (2) Amount (3) Multiplier (4) Economic Ii (5) 1. Food $120. 10 3.32 $398.73 2. Entertainment 49.70 3.31 164.51 3. Gasoline 21.60 2.94 63.50 4. Car Maintenance 11.60 2.90 33.64 5. Electricity 7.40 2.50 18.50 6. Gas 5.00 2.94 14.70 7. Other 'i s fin 9 on iO i . 8. Maid 21,26 3.28 69.73 9. Gardener 11.94 3.28 39. 16 10. Clothing 9.03 3.09 27.90 11. Medical Expense 12.97 3.28 42.54 12. Dental Expense 3.00 3.28 9.84 13. Rent 94.00 3.28 308.32 14. Water 2. 10 3.28 6.89 15. Housing Maintenance 21.70 3.10 67.27 Multiplier for renters' expenditures = Sum o f items 1 through 13CCol.5') Sum of items 1 through 13 (Col. 2) = 3.195 -146-

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-147MulLiplier for homeowners' expenditures Single Multiplier Sum of items 1 through 12 + 14 and 15 (Column 5) Sum of items 1 through 12 + 14 and 15 (Column 2) 3.168 3.195 X 145 + 3.168 x 118 263 -3.18

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BIBLIOGRAPHY Books Bhagwati, Jadish. The Economics of Underdeveloped Countries . New York: McGraw-Hill Book Company, 1966. Bronfenbrenner, M. "The Appeal of Confiscation in Economic Development." The Economics of Underdevelopment . Edited by A. N. Agarwala and S. P. Singh. London, Oxford, New York: Oxford University Press, 1963. Department of Economics of the State of Jalisco. Jalisco: Avance y Perspectivas Indus triales . Guadalajara: Government of the State of Jalisco, February, 1970. Department of Economics of the State of Jalisco. Jalisco: Continuidad y Dinamica . Guadalajara: Government of the State of Jalisco, May, 1969. Duesenberry, James. Income, Saving and the Theory of Consumer Behavior . Cambridge: Harvard University Press, 1949. Ford, Norman D. Fabulous Mexico . Greenlawn, New York: Harien Publications, 1970, Freithaler, William 0. Mexico's Foreign Trade and Economic Development . New York: Frederick A. Praeger, 1968. Furtado, Celso. "Capital Formation and Economic Development." The Economics of Underdevelopment . Edited by A. N. Agarwala and S, P. Singh. London, Oxford, New York: Oxford University Press, 1963. Golds mith, W. W. The Impact of the Tourism and Travel Industry on a Developing Regional Economy: The Puerto Rican Case . Ithaca: Department of City and Regional Planning, Cornell University, September, 1968. Government of the State of Jalisco. Jalisco: Imagen 70 . Guadalajara, Jalisco: Government of the State of Jalisco, 1970. Hagen, Everett E. The Economics of Development . Homewood, Illinois: Richard D. Irwin, Inc., 1968. -148-

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-149Higgins, Benjamin. Economic Development . New York: W. W. Norton and Company, 1968. Redder, B. W. Economic Development in the Tropics . London: Methuen and Co., Ltd., 1968. Johnson, Harry G. Economic Policies Toward Less Developed Countries . New York: Frederick A. Praeger, 196 7. Kuznets, Samuel. Economic Growth and Structure . New York: W. W. Norton and Company, 1966. M. de Escobar, Rafael. How to Do Business in Mexico . New York: Exposition Press, 1961. Meier, Gerald M. and Baldwin, Robert E. "Technical Assistance." The United States and the Developing Economies . Edited by Gustavis Ranis. New York: W. W. Norton and Company, 1964. Morganthau, Hans J, "Preface to a Political Theory of Foreign Aid." Why Foreign Aid . Edited by R. A. Goldwin. Chicago: Rand McNally and Company, 1963. Myrdal, Gunnar. Rich Lands and Poor Lands . New York: Harper and Brothers, 195 7. Nurkse, Ragner. "Some International Aspects of the Problem of Economic Development." The Economics of Underdevelopment . Edited by A. N. Agarwala and S. P. Singh. London, Oxford, New York: Oxford University Press, 1963. Olizar, Marynka. A Guide to the Mexican Markets . Mexico City: Marynka Olizar, 1968, Pincus, John A. "International Policies for Economic Development," Reshaping the World Economy . Edited by John A, Pincus. Englewood Cliffs, New Jersey: Prentice-Hall, Inc., 1968. Ronis, Gustavis. "Trade, Aid, and What?" The United States and the Developing Economies . Edited by Gustavis Ronis. New York: wT^W. Norton and Company, 1964. Salera, Virgil. Multinational Business . Boston: Houghton Mifflin Co., 1969.

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-150Other Sources American Consulate General. General Information on the Guadalajara Consular District . Guadalajara: American Consulate General, May, 1969. (Mimeographed) Avalos Medina, Jaime. "Valiosa Fuente Sera en Breve el Eje Guadalajara-Chapala-Vallarta, " El Occidental (Guadalajara), August 21, 1970. Banco de Mexico, S. A. Annual Report, 1969 . Mexico City: Banco de Mexico, S. A. , 1970. , Departamento de Estudios Economicos. "Los Efectos del Gasto de los Turistas Residentes en el Exterior Sobre la Economia Mexicana." Mexico City, 1969. (Unpublished Report) . Christman, John. "Mexico Pushes Massive Tourist Industry?" Mexico/This Month , January, 1969, pp. 11-15. Clement, Harry G. "The Impact of Tourist Expenditures," Development Digest , V, July, 1967. Comercio Exterior. (Mexico City). Bando de Comercio Exterior, January , 1970. de Sevilla P., Eduardo. "Los Valores de Renta Fija y su Rendi miento," Vision . December 4, 1970. El Mercado de Valores . (Mexico City). Nacional Financiera, S. A. December 22, 1969. . March 9, 1970. . November 16, 1970. El Occidental . (Guadalajara, Mexico). August 19, 1970. . Editorial, August 21, 1970. "Exportaciones : Factor de Crecimiento , " Vision . November 20, 1970. Focus on Mexico . (Mexico City, Mexico). Department of Tourism, January, 1969. Panorama Economic a . (Mexico City, Mexico). Banco de Comercio, March-April, 1970.

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-151"Paradise Lose? Bali Wonders," The News and Observer (Raleigh, North Carolina), December 27, 1970. Prebisch, Raul. "Commercial Policies in the Underdeveloped Countries," American Economic Review, Papers and Proceedings , XLIX, May, 1959. Singer, Hans W. "The Distribution of Gains Between Investing and Borrowing Countries," The American Economic Review, Papers and Proceedings , XL, May, 1950. "Tequila, Bebida que Gana Adeptos y Mercado." Vision . September 11, 1970. The News . (Mexico City) . August 21, 1970. The Organization for Economic Cooperation and Development. Tourism in OECD Member Countries in 1968 and the Early Months of 1969 . Paris: The Organization for Economic Cooperation and Development, 1969. United Nations. Department of Economics and Social Affairs. "Dimensions of Recent Economic Growth." World Economic Survey . New York: United Nations, 1968. Villar Borda, Leopoldo. "Venezuela Tiene Otro Filon de Oro." Vision . December 18, 1970, pp. 36-G-H. World News of the Week . Volume 33, No. 19, January 4, 1971.

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BIOGRAI'UICAL SKETCH Donald Alton Ball was born September 9, 1923, in Detroit, Michigan. He graduated from Ohio State University in 1950 with a degree in mechanical engineering and is a licensed Professional Engineer in the state of Ohio. After graduation, he was employed in various marketing and general management positions by firms oper ating in Latin America. In September, 1968, he entered the Graduate School of the University of Florida to pursue studies leading to a doctorate in Economics. His major area of concentration was International Economics, with minor concentrations of interest in Marketing, Economic Theory, and Labor Economics. While attending the University of Florida, he was made a member of Omicron Delta Epsilon. On April 30, 1970, he became a candidate for the doctor of phil-osophy degree in Economics. The writer is a member of the American Economic Association, American Marketing Association, Southern Economic Association, and Southern Marketing Association. -152-

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I certify that I have read this study and that, in my opinion, it conforms to acceptable standards of scholarly presentation and is fully adequate, in scope and quality, as a dissertation for the degree of Doctor of Philosophy. Robert W. Bradbury, Chairman 1 Professor of Economics I certify that I have read this study and that, in my opinion, it conforms to acceptable standards of scholarly presentation and is fully adequate, in scope and quality, as a dissertation for the degree of Doctor of Philosophy. ^alph h! Blodgett \^ Ralr Professor of Economics I certify that I have read this study and that, in my opinion, it conforms to acceptable standards of scholarly presentation and is fully adequate, in scope and quality as a dissertation for the degree of Doctor of Philosophy. Charles W. Fristoe Associate Professor of Ec< I certify that I have read this stu4^