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DIRECTOR/Editor-in-Chief Salvador Contreras, Ph.D. EDITORIAL BOARD Pablo Camacho, Ph.D. Texas A&M International University Salvador Contreras, Ph.D. The University of Texas-Pan American Alberto Davila, Ph.D. The University of Texas-Pan American Tom Fullerton, Ph.D. The University of Texas at El Paso Gautam Hazarika, Ph.D. The University of Texas at Brownsville

Jim Lee, Ph.D. Texas A&M University-Corpus Christi ADVISORY BOARD Eduardo Caso Lone Star National Bank Raudel Garza Harlingen EDC Maria Mann SCIC-Women’s Business Center Alex Meade Mission EDC Rebecca M. Olaguibel City of McAllen Cynthia M. Sakulenzki RGV Hispanic Chamber of Commerce Joey Treviùo Weslaco EDC

CENTER FOR

BORDER

ECONOMICS STUDIES

COLLEGE OF BUSINESS ADMINISTRATION The Center for Border Economic Studies (CBEST) is a public policy research unit of the College of Business Administration at The University of Texas-Pan American. CBEST is dedicated to the study of problems and issues unique to the U.S. and Mexico border economy.

CBEST conducts interdisciplinary research that supports economic development, trade, entrepreneurship, innovation, social mobility, and access. Among its technical reports, the Center publishes the Border Business Briefs (BBB), a quarterly publication, and the Business Outlook Forecast, an annual publication. CBEST has strategic partnerships with private sectors, foundations, government agencies, research scholars, and nonprofits to fulfill its mission.

CBEST focuses on research in the area of interdisciplinary policy, in support of sustainable economic development. We publish articles, monographs, books and reports that examine economic, social and political issues in the border region and make them available to policymakers, business leaders, government officials, academics, students, and the border community in order to foster informed decision making.

In addition, CBEST provides contract services in policy research, survey design, data collection, data research analysis, data interpretation, presentations and reports. These services are performed for a fee.

Please contact CBEST for additional information on the contract services we provide.

1201 W. University Drive, Edinburg, TX 78539 | cbest@utpa.edu | utpa.edu/cbest

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The work of the Center for Border Economic Studies is financed through contracts, grants, gifts and sponsorships. Your sponsorship plays an important role in the work we do.

We accept gifts and sponsorships of any size.

Currently, we have five explicit sponsorship levels:

Become a sponsor today utpa.edu/cbest *A full page is 8.5 x 11 in. actual size and coverage area will vary. Sponsorship level and recognition are subject to change. Please contact CBEST for full details.

PLATINUM SPONSOR $1,000 Full-page recognition in the next two issues.

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COPPER SPONSOR $100 Mention of your support in the next issue.

Your generosity to CBEST will be acknowledged in the following ways: 1) You will receive a letter from UTPA acknowledging your gift.

2) Your name/logo and valued support will be displayed in a future issue of Border Business Briefs.

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LETTER FROM THE EDITOR

November 1, 2014 Dear Reader, This publication continues to be a source of information on the latest economic, social, and business development information for the South Texas region. Thank you for continuing to turn to the Border Business Briefs. This issue presents a diverse set of articles that touch on business creation, tourism, society, and entrepreneurship.

In this issue we feature the August 2014 SpaceX decision to make Brownsville the next frontier in space travel. SpaceX has already broken ground in Boca Chica Beach, the site of its future launch pad. Jorge Montero explains the process, timeline, and its expected impact on our region.

In addition, the issue features an article on happiness in Texas by Jim Lee, cross-border medical tourism by Monica Hernandez, ADRs and investment diversification by Jorge Vidal, and a look at entrepreneurial activity in South Texas by Armando Valero and myself. This month we showcase Valley talent Carolina Huerta.

This publication and other work by CBEST are made possible by the generosity of volunteers and sponsors like you. We like to take a moment to thank our three sponsors: City of McAllen, Lone Star National Bank, and Harlingen Economic Development Corporation for their generosity.

If you are not already a sponsor, please visit us online at utpa.edu/cbest and become a sponsor today.

We hope you enjoy this issue. Fell free to send us your comments at cbest@utpa.edu.

Best regards,

Dr. Salvador Contreras Editor-in-Chief

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Copy Editor Jannesa Campbell Creative and Design Studio Twelve01 Research and Special Projects Jose Clemente Abdelhamid Riani Armando Valero

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08 12

Entrepreneurship South Texas Economic Gauge Life & Society Happiness in Texas Valley Talent Creating Change One Nurse Professional at a Time

14 Entrepreneurship Space X: TTTSPACEX Launching Dreams in the RGV 18 Tourism

Seeking Health Care Across the Border 20

Financial Literacy Diversifying Your Portfolio

24 Entrepreneurship The Ups and Downs of Entrepreneurial Activity in South Texas

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ENTREPRENEURSHIP

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LIFE & SOCIETY

By Jim Lee

Texas is not only big, but it is also happy. Texans tend to be happier than other Americans, according to a recent study about people’s satisfaction with life. Two economists at Harvard University, Edward Glaeser and Oren Ziv, and one economist at University of British Columbia, Joshua Gottlieb, have released a study on subjective wellbeing, or happiness, across different cities in the United States.

Their findings, as summarized in a report titled “Unhappy Cities,” are based on surveys conducted by the Center for Disease Control and Prevention in each year between 2005 and 2009. The Center asked a total of 300,000 respondents: “In general, how satisfied are you with your life?” The responses were in four categories between “very satisfied” to “very dissatisfied.”

Happiness Across the U.S. The map below (Figure 1) shows the study’s happiness scores for metropolitan areas across the United States after adjusting for individual respondents’ income levels and demographical characteristics, including race, gender and age.

Positive scores represent measures of aboveaverage happiness, and negative scores represent measures of below-average happiness. In addition to such economic factors as employment and income, people tend to be happier if they are married, or if they have children or hold a college degree.

Happier people are scattered across rural areas of the South, the West and Upper Midwest. Those regions are colored in blue and green in the map.

Less happy areas tend to be concentrated in cities in southern California and the so-called Rust Belt 8

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in parts of the Midwest and Appalachian regions.

Areas in red are where people experience the most misery. It is no surprise that Detroit—an auto city now with a bankrupt government—and Pittsburgh— an old steel town—are among the unhappiest cities.

It is surprising that New York City receives the lowest score of self-reported happiness.

Richer Countries are Happier It is well known that people living in rich countries tend to experience greater life satisfaction than do people in poor countries. According to the popular Happy Planet Index, a leading global measure of well-being, people who are most satisfied with their lives are those living in the most prosperous countries, like Norway, Finland and Sweden in Scandinavia. Conversely, people in least developed countries, like Zimbabwe and Togo in Africa, experience the least well-being.

However, the relationship between income per capita on people’s subjective well-being is not linear or always positive. There is even less evidence to confirm this relationship among people living within the same country. For instance, why are people so miserable in New York City and Los Angeles, where many of the nation’s richest live?

Money Can Buy Happiness The authors of “Unhappy Cities” found that people in urban areas tend to be happier than people in rural areas, as long as the cities are growing in population. Residents in declining cities feel less happy than residents in growing cities. However, the fact that people continue to move to those declining cities perhaps suggests that humans do not necessarily aim to maximize their subjective well-being. An alternative interpretation is that humans are willing to sacrifice happiness if the price is right. Indeed, the study provides evidence that residents of unhappy cities today earn higher incomes even after adjusting for differences in the cost of living. This finding suggests that financial gains can compensate for people’s misery. This is particularly true for New York City, where the saddest people live.

State of Happiness How happy are Texans? Table 1, shows a list of scores and rankings for metro areas in Texas among all 318 metro areas in the United States.

According to the study’s raw scores without adjustment for individuals’ demographic and economic characteristics, Tyler is Texas’s happiest city at 11th place across the United States.

Galveston comes next at 14th in the nation. The

third happiest Texas metro area is Corpus Christi.

When the scores are adjusted for differences in individual demographics and income levels, then Corpus Christi comes out the happiest metro area in Texas. Its ranking among all U.S. metro areas of different size categories also jumps from 23rd to 9th place. Similarly, the rankings for a large number of Texas metro areas, including El Paso, Laredo, and McAllen-Edinburg-Mission, also improve remarkably in their rankings when their scores are adjusted for demographics and income. The per capita income levels for these metro areas are below the national average. So, the shifts in the relative rankings for border cities in the table suggest that, other things being equal, its residents would feel happier should they earn more income.

Smile Factors So, why are Texans happy in general? Although the three researchers couldn’t confirm that weather has any definitive impact on happiness, the wealth of self-reported data do suggest that Americans in the South with sunnier climate tend to be more joyful. Also, people tend to experience more joy in areas with beaches and waterfronts, like Galveston and Corpus Christi. It is interesting to note that the majority of the top 10 metro areas are near the Gulf Figure 1: Happiness Scores Source: Glaeser, Gottlieb and Ziv (2014, Figure 3).

AREA HAPPINESS Most happy 0.07 - 0.14 0.04 - 0.06 0.02 - 0.03 0.00 - 0.01 -0.02 - -0.01 -0.06 - -0.03 -0.17 - -0.07

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Table 1: Rankings of Happiness for Texas Metro Areas Metro Area Corpus Christi Tyler Galveston-Texas City Lubbock San Angelo Waco Beaumont-Port Arthur Houston Odessa-Midland San Antonio McAllen-Edinburg-Mission Laredo Dallas El Paso Wichita Falls Austin-San Marcos Amarillo Victoria Texarkana Abilene

Raw Happiness Score 0.088 0.107 0.098 0.087 0.081 0.027 -0.008 0.042 0.017 0.029 -0.027 -0.047 0.032 -0.045 0.021 0.034 0.014 -0.021 -0.060 -0.075

Ranking 23 11 14 24 28 129 208 94 143 126 245 289 119 283 139 110 153 236 314 332

Score Adjusted for Demographics and Income 0.087 0.071 0.067 0.065 0.057 0.028 0.026 0.023 0.019 0.015 0.015 0.012 0.012 0.011 0.010 0.000 -0.001 -0.018 -0.026 -0.065

Ranking 9 18 25 27 36 85 89 101 113 130 131 141 143 146 148 176 185 244 266 348

Note: A positive score represents an above-average measure of happiness across 318 U.S. metro areas, and a negative score represents a belowaverage measure of happiness. Source: Glaeser, Gottlieb and Ziv (2014).

Coast. In particular, Louisiana takes many of the top spots. Lafayette, Louisiana being the happiest metro in the United States.

Yet happiness is not the most important factor in people’s decision on what city to live. For more than a decade up to 2011, Corpus Christi experienced a negative net domestic migration flow, meaning that more residents left than moved in. Since 2011, the Corpus Christi population has continued to grow due to international migration and natural births. Austin represents another case in point. Like New York City, this fast-growing city has continued to attract people from the rest of Texas and beyond despite its relatively low ranking in reported happiness.

Pursuit of Happiness Although self-reported survey data are not definitive measures of individual well-being, it does provide insight into people’s perception of their own lives.

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Economists assume that the main objective of people in life is to maximize their own utility levels.

The fact that people continue to migrate to unhappy cities might imply that the subjective experience of happiness is not the same as the economic concept of utility. As the authors of “Unhappy Cities” conclude, people care about more than happiness and life satisfaction, and many other factors may motivate them to stay in a city Dr. Jim Lee is Professor despite their misery. From of Economics and this perspective, government Director of the South officials and community leaders Texas Economic Development Center at should not consider a boost Texas A&M Universityin subjective happiness as Corpus Christi. an overriding public policy goal. Interestingly, people in a Endnotes: Glaeser, Edward, Joshua Gottlieb, and Oren Ziv, number of Texas cities would “Unhappy Cities,” National Bureau of Economic Research, feel happier if they could boost Working Paper No. 20921, their individual incomes.

July 2014.

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VALLEY TALENT

By Jannesa Campbell

This quarter we feature Dr. Carolina Huerta, Professor and the Lillian O. Slemp Endowed Chair of Nursing at The University of Texas-Pan American. Dr. Huerta has a long list of achievements and an impressive record of service. She earned her Bachelor of Science in Nursing from Incarnate Word College in San Antonio, now known as University of the Incarnate Word, a Master of Science in Nursing from The University of Texas at Austin, and an Ed.D. from Texas A&M University-College Station. She first joined UTPA, known then as Pan American College, in 1972 and has since contributed to the growth in the Department of Nursing.

Dr. Huerta is a registered nurse and committed educator. Among the many honors she has been awarded over the years is the UTPA Outstanding 12

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Faculty Award for Professional Achievement in 2002 and the Provost Award for Latin American Studies in 2004, 2005 and 2010. She has served

as chair of the National Advisory Committee for the and Universidad Autónoma de Nuevo Leon School Robert Wood Johnson Foundation New Careers of Nursing in Monterrey, Mexico (2010). She initiated in Nursing program since 2008, and as editorial the first UTPA Nursing Study Abroad Program to board member of the Journal of Nursing and Naresuan School of Nursing in Thailand (2008), Health Sciences, a Thailand international journal, established student collaborations with Naresuan published by Naresuan University, since 2010. In University, facilitated the Thailand Research Scholars 2007, she was elected to serve on the board of visit to UTPA, and is currently coordinating the UTPA directors of the American Association of Colleges College of Health Sciences and Human Services of Nursing, the national organization that represents (COHSHS) sponsorship of the First International baccalaureate and graduate nursing education in Nursing Conference in Phitsanulok, Thailand, that the United States. From 2012-2013, she served will bring together nursing schools from the United on the editorial board for PEPID, a leading source States, Thailand, Philippines, and Vietnam. of clinical information for health care providers.

Dr. Huerta has also contributed time and effort to Dr. Huerta’s state, national, and international her local community. She has served on boards involvement led to her October 2012 induction as such as the American Red Cross-RGV District a Fellow of the American Academy of Nursing, an organization of 2,200 members who are recognized (1993-1996), the Hidalgo County Planned Parenthood (2003-2010), the Hidalgo County as the nation’s most accomplished leaders.

Family and Consumer Sciences Advisory Board Fellows are recognized for their extraordinary (2005-2011), the Solara Hospital nursing careers and are among Board (2006-2014), and Estrella’s Dr. Huerta’s four the nation’s most highly educated citizens according to the description decades of service House Child Advocacy Center Board (2009-2014). She has also included in the academy website. to students and the worked with the Hispanic Women’s Membership in the academy is by nursing profession Network of Texas (1998-2001), invitation only and as leaders in the VOX Planned Parenthood profession, fellows are expected to has made a profound and Student Sponsored Organization contribute in transforming America’s difference on those (2009-2014).

She co-wrote “Health health care system. directly touched by her Promotion in Nursing” with Dr. Dr. Huerta’s career has allowed Janice A. Maville, currently in its third leadership, mentoring, edition. This text has been translated her to not only shape countless and guidance. nurses, but has given her a platform into Chinese for international use. to work for equality and diversity in Her contributions as an educator the nursing profession. She played an instrumental and mentor were recognized in 2008 when Dr. part in the creation and implementation of the first Huerta received the American Nurses Association generic Bachelor of Science in Nursing (BSN) (ANA) Mary E. Mahoney Award, a national award program in the Rio Grande Valley (RGV) in 1992, which acknowledges dedication and outstanding and in 1994 the establishment of the first Master contributions to the profession of nursing in of Science in Nursing program in the RGV. In advancing equal opportunities in nursing for 2000, Dr. Huerta led the initiative to establish the Pi members of minority groups. In 2013, she was Omicron Chapter of Sigma Theta Tau International featured in the fall issue of Minority Nurse for Honor Society of Nursing and has served in a “Growing the Numbers of Diverse Nursing Faculty.” leadership role in the organization since. She Most recently she has been invited to be the has served in various positions, including those December 2014 commencement speaker for the of president, vice-president, and treasurer, in the Texas Tech Health Sciences Center – School of District 26 Texas Nurses Association, and is a Nursing in El Paso. member of the National Association of Hispanic Her four decades of service to students and the Nurses. She is the immediate past president of the nursing profession has made a profound difference Texas Organization of Baccalaureate and Graduate on those directly touched by Nursing Education, an organization composed of all Jannesa Campbell of the baccalaureate and graduate nursing education her leadership, mentoring is pursuing an programs in the state. Dr. Huerta has been integral in and guidance. Dr. Huerta is undergraduate degree in an accomplished educator, the establishment of collaborative agreements with English at The University multiple institutions including Universidad Autónoma professional, leader, wife of Texas-Pan American. and mother. de Tamaulipas System Schools of Nursing (1996), B order B usiness B riefs | F all 2014

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ENTREPRENEURSHIP

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By Jorge I. Montero

Brownsville is currently experiencing a rebirth of sorts in industry, with the area’s proximity to shale natural gas and deep-water oil reserves, its position for renewable energy, international logistics at the Port of Brownsville, and by playing a key role in the supply-chain-logistics of the automotive industrial corridor in North America.

And today, with the introduction of the new space industry, Brownsville is poised to add innovation and entrepreneurship opportunities to what is becoming a diversified global economy.Âť

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Space Exploration Technologies’ founder Elon Musk announced on August 2014 the strategic decision to build the world’s first vertical rocket launch site in the outskirts of Brownsville, Texas. The company plans to launch its signature Falcon 9 rocket from this launch site. SpaceX already has launch sites at Vandenburg, Calif. and Cape Canaveral, Fla. The launch site will be at Boca Chica Beach, on the edge of the Gulf of Mexico and saddling the Rio Grande.

The much anticipated and awaited decision finally came, after more than three years of analyzing sites in Georgia, California, Virginia, Alaska, Puerto Rico and Florida. Within Texas, SpaceX originally was sorting through about a dozen locations from Cameron County to about 90 miles north, in the King Ranch area, but ultimately, Brownsville became the sole Texas finalist. The project was given the green light in July by the Federal Aviation Administration (FAA), as part of the federal environmental process.

The Greater Brownsville Incentives Corporation (GBIC) committed $5 million as part of the overall incentives package proposed to the SpaceX project.

In addition to GBIC, several entities at the local and state level committed to funds, services or abatements for the project, including $13 million from the Texas Space Port Trust Fund and $2.3 million from the Texas Enterprise Fund, both offered by the state.

The project entails three separate components: the rocket launch site, a control command center and a ground tracking station, all within 2 miles of each other and at the very end of Highway 4 where it meets the Gulf. The actual launch operation will be built on a 5-acre footprint within the 50 acres. SpaceX estimates a turnaround time for the construction project to be 18-24 months.

BEDC projects upward of 500 direct jobs will be created as a result of this project over a 10-year period and an infusion of $51 million in annual

“Our unique geographic location and proximity to both, the equator and the Gulf of Mexico, gave Brownsville an advantage over the other locations being considered by SpaceX...”

-Jason Hilts, Brownsville Economic Development Council (BEDC) President & CEO The FAA’s Environmental Impact Statement determined that the proposed site would have no significant impact on the environment. The approval allows SpaceX to launch up to 12 commercial launches, including launches of the Falcon 9 and a maximum of two Falcon Heavy launches, annually through 2025.

salaries. The new space industry will also enhance the supply-chain-logistics of the BrownsvilleMatamoros local manufacturing base. This in turn will provide a boost to the automotive industrial corridor that stretches from Central Mexico to the southern U.S. states.

“Our unique geographic location and proximity to both, the equator and the Gulf of Mexico, gave Brownsville an advantage over the other locations being considered by SpaceX. However, the facilitation of doing business in Texas, the backing from many local entities, and the community-wide support was a huge factor in the decision-making process of SpaceX locating in Brownsville,” said Jason Hilts, Brownsville Economic Development Council (BEDC) president & CEO.

Expanding the Supplier Base Paragon D & E’s recent announcement that it will expand its operations to the Borderplex, officially become the first SpaceX certified supplier with a facility in Brownsville.

“The SpaceX launch site will go a long way to help fill the gap between business, higher education and entrepreneurship, which Brownsville needs to strategically and organically grow local talent, which in turn leads to innovation and wealth in the region,” Hilts said.

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Paragon, based out of Grand Rapids, Mich., acquired Brownsville Rio Grande Tools Company and plans to service all its industry lines, which include the automotive and heavy truck industries, aerospace, agriculture, and oil and gas from its Brownsville facility.

The company designs, engineers and manufactures highly complex tooling systems for its customers.

Paragon has broadened its involvement in commercial and defense aerospace in the last five years and has positioned itself to be a supplier of the SpaceX launch facility.

Attracting Visitors The SpaceX project will generate millions of dollars over the years to the City of Brownsville coffers in indirect sales tax revenues associated with local spending from SpaceX employees and its supplier base.

Countdown to the First Launch The BEDC started working with the Texas Governor’s Office and SpaceX on the project in March 2011. Since then, other entities, organizations and individuals have directly worked on the project.

It is difficult to estimate with precision the direct tourism impact. However, using Cape Canaveral as a guide, they attract upward of 40,000 visitors and several million dollars in economic impact to the immediate area on every unmanned launch. BEDC conservative estimates are that Cameron County will see about 15,000 visitors per launch.

The FAA started the process of the Environmental Impact Statement in 2012 and held the first public scoping hearing in Brownsville that same year. Some 550-plus individuals who attended this meeting showed overwhelming support for the project. The second and final public scoping hearing took place in 2013; of the over 500 individuals who attended most were in support of the project.

Annually, SpaceX plans up to 10 launches of their signature rocket, the Falcon 9, and two launches of the Falcon Heavy.

To capitalize on this surge of visitors to the area, a string of hotel franchises have started inquiring about possible investments in the Brownsville Borderplex area to accommodate the estimated visitors to SpaceX launches.

The Brownsville South Padre Island International Airport is planning the construction of a new terminal to accommodate the expected growing number of visitors for SpaceX launches and employees working on the rockets.

In July of this year the FAA officially gave SpaceX the authority to build a launch site at Boca Chica Beach. The following month, SpaceX announced Brownsville as the site for its private commercial launch operation. Construction for the launch site, command Jorge I. Montero is center and tracking station is Marketing and Design Coordinator for expected to begin in late 2014 Brownsville Economic and run through 2015. The first Development Council. launch is expected to occur Photos source: sometime in 2016. www.spacex.com/media B order B usiness B riefs | F all 2014

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TOURISM

Seeking health care across the border

By Monica Hernandez

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Medical tourism is a common occurrence among U.S.-Mexico border residents. In a recent study, Monica Hernandez at Texas A&M Corpus Christi and Mohammadali Zolfagharian at The University of Texas-American explore the American tourists’ motives for cross-border health consumption.

As expected, they find that crossborder medical tourist seek out lower costs of medical services.

However, they also found medical tourists are particularly impressed with the Mexican quality of service and care, time saving, availability, provision of alternatives and convenience. In addition, tourists have a favorable view of the availability of alternative medicine and tend to underestimate the risks associated with medical services in Mexico.Âť

In spite of the significant cross-border medical mobility, very little is known of this phenomenon along the U.S.-Mexico border. The rising number of uninsured and underinsured middle-class Americans results in growing numbers of patients traveling to Mexico to receive health services. Beyond the cost factors, what inner motives prompt American residents to travel across the border to get medical care?

Hernandez and Zolfagharian conducted survey interviews to investigate tourists’ motives to travel for health consumption along the U.S.Mexico border. They identified four key issues related to enhancing the process of health provider delivery in key destinations and to improving the medical tourist satisfaction.

Economic factors The low cost of the medical and dental services in Mexico was one of the expected reasons to patronize cross-border providers, particularly for those patients requiring recurrent or follow-up procedures. However, another lessdiscussed economic driver was the opportunity to negotiate the prices of the services.

Quality service and care Other than the medical expenses, respondents also pointed to the unexpected quality of delivered services, coupled with considerate empathy and caring from the Mexican medical providers and staff. Respondents highlighted the importance of listening to the patients’ concerns first, rather than running an indefinite number of tests to diagnose the problem.

Convenience According to the respondents, medications were readily available. Pharmacies are generally open 24 hours a day and medical facilities offer convenient locations. Moreover, patients have the opportunity to opt for generic medication and are offered the options of a large selection of over-the-counter remedies. Time saving was another recurrent theme. Not only did respondents appreciate the immediate medical attention (as opposed to waiting days to see the doctor), but also

the reduced waiting time to see the professional once at the doctor’s office. The respondents also noted quicker procedures performed to the patient.

Risky but worth it Traveling to the Mexican border may encounter a series of risks, but medical tourists find it worthy. Respondents expressed safety (due to the current spread of violence) and hygiene concerns, as well as the common use of less diverse and complex medical equipment.

However, respondents acknowledge the same procedures in the U.S. requiring such equipment would result in much higher costs.

As globalization drivers increase, the mobilization of people to deliver or receive medical services will become more prevalent. Studies addressing crossborder medical tourism benefit both domestic and international providers. For domestic health providers, the cited study suggests that in order to stay globally competitive, health Dr. Monica Hernandez facilities should become more is associate professor of accommodative toward patients Marketing at Texas A&M needs, regardless of origin. For University Corpus Christi. international health providers, the Endnotes: study provides guidelines to the Hernandez, Monica D. and Mohammadali Zolfagharian. development of differentiation “Motives for Patronizing U.S.– of their health services, such as Mexico Border Health Providers: A Qualitative Approach.” Texas A&M low-risk procedures, cleanliness University-Corpus Christi, and exploitation of certain niches. working paper.

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FINANCIAL LITERACY

Diversifying your portfolio

Asset diversification, the process of investing in many classes of assets, is one of the main tenets of modern finance. It allows investors to seek higher returns while reducing risk. Investing in a single asset exposes the investor to two kinds of risks: companyspecific risk (also known as unsystematic risk) and market risk (also known as systematic risk).

A properly diversified portfolio eliminates the unsystematic risk leaving the investor exposed to only systematic risk. The ability of mutual fund companies to produce well diversified portfolios with minimum unsystematic risk, at low cost, is the main reason why they have become very popular amongst investors.

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By Jorge Vidal

Investors in the U.S. have many options to diversify their portfolios. They can allocate their money into equities (stocks), fixed-income securities (bonds), commercial and residential real estate, and cash equivalents (money market instruments), to name a few. However, an investor does not have to limit his/her options to assets located within the U.S. In today’s global economy investors can further reduce the unsystematic risk by diversifying their portfolios with foreign equities. While it is possible to invest directly in foreign equities by opening brokerage accounts in one or more foreign countries, doing so is expensive, difficult to manage, and exposes the investor to exchange rate risk. If the currency of the country in which the investor has a brokerage account devaluates against the U.S. dollar, the dollar value of the portfolio will decrease proportionally to the rate of depreciation.

Fortunately, U.S. investors have at their disposal foreign equities in American markets. Foreign corporations offer their equity in the U.S. markets by issuing American Depositary Receipts (ADRs).

ADRs are negotiable certificates evidencing equity ownership in a foreign corporation. To create these certificates, foreign corporations put aside a determined number of shares in their

home countries and deposit them in a local bank.

A U.S. bank then creates ADR shares based on the number of shares the foreign corporation has deposited in its home country bank. Once ADRs are created, they trade in the American equity markets just like the equity of any U.S. corporation.

Dr. Jorge Vidal is Lecturer of Finance at The University of TexasPan American Endnotes: The ADRs listed in American markets can be found at http:// www.adrbnymellon.com/ dr_directory.jsp

ADRs offer U.S. investor several benefits: International diversification, trade in U.S. dollars, compliance with SEC regulations, financial statements following GAAP rules, dividends and other distributions paid in U.S. dollars, and trade like any other American corporation. A complete list of ADRs is available from the Bank of New York Mellon (see endnote). There are more than 2,700 ADRs available to U.S. investors from 62 countries.

The four countries with the most ADRs are the United Kingdom, China, Japan, and Australia, in that order. The ADRs cover 40 different industries like banks, financial services, auto parts, media, mining, etc. Some of the major international corporations, such as Toyota Motor Corporation (NYSE: TM), issue ADRs. Clearly, this wide selection or geographical regions and industries offer U.S. investors a very attractive option to diversify their portfolios with foreign equities without leaving the U.S. ADRs also offer investors the potential to outperform the SP500 index, the broadest measure of U.S. stocks, in approximately six out of the last 10 years. Both the Invesco and J.P. Morgan International ADR portfolios have outperformed the Standard & Poor’s 500.

Investing in ADRs is not without risk. ADRs are subject to some of the same risks as domestic investments, including credit, bankruptcy, and inflation risk. These should be taken into account before investing in ADRs. Additionally, there are three levels of ADRs. Level I are small corporations whose ADRs trade over the counter and as such, are not very liquid. They offer high yields but are also highly speculative. Level II and III ADRs trade in the major American exchange markets. Investors seeking to diversify their portfolios with foreign equities without exposing themselves to the risks associated with so called “penny stocks” should consider only Level II and III ADRs. Many investors ignore foreign equities even though they can help them achieve better returns, particularly when the U.S. economy is in a contraction. U.S. investors should consider ADRs to diversify their portfolios and maximize their returns while minimizing risk.

Table 1: Annual returns comparing between the broader U.S. market (S&P 500) and two ADR funds.

Year

S&P 500

Invesco International ADR

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

10.88% 4.91% 15.79% 5.49% -37.00% 26.46% 15.06% 2.11% 16.00% 32.39%

15.57% 14.92% 24.85% 11.78% -40.69% 30.77% 11.47% -8.94 11.93% 15.76%

J.P. Morgan International ADR

16.03% 9.73% 20.42% 7.45% -43.09% 28.29% 2.99% -13.59% 16.87% 13.91%

Source: S&P 500 from Yahoo; and Invesco and J.P. Morgan from their respective websites.

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ENTREPRENEURSHIP

The ups and downs of entrepreneurial activity in South Texas

by Armando Valero and Salvador Contreras

The Rio Grande Valley (RGV) is drastically changing from what was primarily rural communities to a more urbanized set of communities.

This change has coincided with a growth of entrepreneurial activity in the region. Although, it is difficult to distinguish with precision which RGV cities are growing rapidly, in this article we attempt to measure entrepreneurial growth for a select number of cities. We gather data from the U.S. Census Bureau and the Texas Comptroller of Public Accounts and produce a one-year snapshot of business creation activity in the region.Âť 24

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El Paso Corpus Christi

4.3

San Benito

4.4

Harlingen

Figure 1: Average monthly (over 12 months) new tax permits per 10,000 residents

3.7

4.7

Pharr

5.6

Mercedes

5.7

Brownsville

5.8

Edinburg

5.9

Weslaco

6.3

Laredo

6.4

Mission

Not surprisingly, the City of Hidalgo has received on average 10.8 per month new sales tax permits per 10,000 residents. In fact, the top four producers of new tax permits are also among the smallest cities in our sample.

6.9

Alamo

7.4

McAllen

7.5 8.3

Rio Grande City

9.1

Donna

9.2

Hidalgo

Figure 2 produces year over year growth rates of new tax permits. The figure shows the percentage increase (or decrease) from August 2013 to August 2014 by city. As noted by the graph, this shows us that only four cities from the RGV, Mission, Pharr, Edinburg, and San Benito have opened more businesses in August 2014 relative to the same month a year prior. By this metric most cities have experienced a contraction in number of new tax permits issued. Because of the high month-overmonth volatility we show 12-month historical data in the next three figures.

50 40 30 20 10 0 -10 -20 -30 -40 -50

San Juan

per 10,000 residents. Figure 1 reports the average monthly number of new firms (issued permits) over the past 12 months per 10,000 residents for selected municipalities. For example, El Paso had on average 3.7 new tax permits issued every month over the past 12 months per 10,000 residents.

This number allows us to better compare El Paso with smaller municipalities.

10.8

We sorted through the top 14 most populated cities in the RGV. According to 2010 U.S. Census Bureau counts, the populations of our sample are as follows: Brownsville (175,023), McAllen (129,877), Edinburg (77,100), Mission (77,058), Pharr (70,400), Harlingen (64,849), Weslaco (35,670), San Benito (24,250), Alamo (18,353), Donna (15,798), Mercedes (15,570), San Juan (14,746), Rio Grande City (13,834), and Hidalgo (11,198). In addition, we compare RGV cities with Laredo (236,091), Corpus Christi (305,215), and El Paso (649,121).

We are not able to measure new startups directly.

However, we use data from the Texas Comptroller of Public Accounts on new tax permits as proxy for entrepreneurial activity. The idea for this is, when new businesses begin to operate, they, unless tax exempt, are required to take out a tax permit. This assumes that the majority of businesses are not tax exempt. The information on tax permits provides us with a good approximation as to new business creation every reporting period.

The comptrollers’ office reports weekly data. We aggregate data by month from August 2013 to August 2014. To make the data comparable across municipalities we report monthly new tax permits

San Juan

-43%

Mercedes

-43%

Weslaco

-30%

Alamo

-29%

Hidalgo

Figure 2: August 2013 to August 2014 growth in new tax permits

-25%

McAllen

-18%

Rio Grande City

-17%

Donna Harlingen

-16% -13%

Laredo

-7%

Brownsville

-6%

El Paso Corpus Christi Mission Pharr Edinburg San Benito

0%

7% 16% 21%

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Figure 3, Figure 4, and Figure 5 shows us the historical new tax permits growth from August 2013 for large, medium, and small cities, respectively. For better visualization of the data we normalize August 2013 to 100. Every point tells us the growth over August 2013. For example, for February the City of McAllen had a growth of 22% (shown as 122% in Figure 3) over August 2013. A number less than 100 implies a contraction over August 2013. For example, in August 2014 McAllen had a score of 82 or a contraction of 18% over August 2013.

Benito and Hidalgo had the better performance over the 12-month period. Hidalgo had a sharp drop in growth in August 2014 from July. This is expected of small cities since the number of permits tends to be small. For example, we counted 22 new tax permits in July and only 6 in August. Small numbers tends to amplify growth rates in either direction. However, viewing Hidalgo over the 12 months gives us a better perspective.

Among small cities Donna and San Juan had the weaker growth rates over their peers.

Figure 3 shows growth rates for large cities, populations over 100,000. Among large cities, Brownsville and Corpus Christi had better monthly new tax permits over the others. McAllen had the weakest showing in new tax permit issuance for large cities.

In summary, the data we present here provide some indication of new business activity in the selected cities. The 12 months of data show that only 5 of the 17 cities experienced year-over-year new tax permit growth. Further, large and medium size cities have strong cyclical patterns. New business activity tends to peak in November and the first quarter of the year. November and December were the weakest part of the year.

Figure 4 shows medium size cities with populations less than 100,000 and above 30,000. Over the past year the cities of Edinburg and Mission had the better monthly gains in new permits issued in this group. Weslaco had a poor showing over the same period. This is particularly evident from April onward.

Figure 5 shows historical growth rates for small cities with populations less than 30,000. San

The data we present here should be interpreted with caution. This is only one measure of entrepreneurial activity. Since we do not have a longer time series we are not able to draw any further information from the figures presented here. We don’t have a long-term trend that would allow us to view the past 12-months in context to

Figure 3: Historical new tax permits growth over August 2013 (Large Cities)

GROWTH IN NEW TAX PERMITS

Brownsville

McAllen

Laredo

Corpus Christi

El Paso

125%

100%

75%

50% 8/1/13 26

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12/1/13

2/1/14

4/1/14

6/1/14

8/1/14

Figure 4: Historical new tax permits growth over August 2013 (Medium Cities) Edinburg

Pharr

Harlingen

12/1/13

2/1/14

Weslaco

Mission

GROWTH IN NEW TAX PERMITS

190%

160%

130%

100%

70% 40% 8/1/13

10/1/13

4/1/14

6/1/14

8/1/14

Figure 5: Historical new tax permits growth over August 2013 (Small Cities) San Juan

San Benito

Mercedes

260%

GROWTH IN NEW TAX PERMITS

Rio Grande City

Alamo

Donna

Hidalgo

180%

100%

20% 8/1/13

10/1/13

12/1/13

the previous five years for example. Further, we do not know firm turnover rates (business tenure) or their contributions to employment and tax revenues to cities. For example, Rio Grande City had an August year-over-year decline in new tax permits of 17% (Figure 2), however it also had a positive 6% growth in tax revenues for July 2014 over July 2013.

2/1/14

4/1/14

6/1/14

8/1/14

Armando Valero is pursuing an undergraduate degree in finance at The University of Texas-Pan American.

Dr. Salvador Contreras is Assistant Professor of Economics at The University of Texas-Pan American.

Endnotes: The Texas Comptroller of Public Accounts reports new tax permits data on a weekly basis and we aggregate by month for each city. Population data comes from U.S. Census Bureau.

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