Specification of a Borderplex Econometric Forecasting Model

Historically linked by geography, trade, and culture, border areas of the United States and Mexico are becoming even more closely integrated by the elimination of trade and investment barriers under the North American Free Trade Agreement. Greater economic integration raises the question of whether the traditional approach to regional econometric modeling is applicable to border metropolitan areas. This paper examines this issue with respect to the El Paso - Ciudad Juarez borderplex by specifying and estimating an econometric model and then simulating it under different currency conditions. Simulation output from the model is then compared and contrasted with extroplations from a Bayesian vector autoregression model. Results indicate that the traditional model provides a viable means for analyzing international border region business trends.