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Effect of Tariff Liberalization on Mexico’s Income Distribution in the presence of Migration

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  • Garduno-Rivera, Rafael
  • Baylis, Katherine R.

Abstract

This paper studies how the North American Free Trade Agreement (NAFTA) affected income distribution within Mexico given internal migration. In low-skilled labor-abundant developing countries, trade liberalization should theoretically increase the income of low-skilled workers, decreasing income disparity. However, anecdotal evidence indicates that NAFTA increased the gap between rich and poor in Mexico, and empirical evidence is mixed (Chiquiar, 2005; Nicita, 2009; Hanson, 2007). Because trade may affect wages differently across regions within the country, accurate measures of wage effects must incorporate intra-national migration. We specifically consider rural to urban migration and find that working age men with low incomes get a boost from the NAFTA in their wages while NAFTA has a negative effect for those with high incomes. There is a slight increase in migration in the years after NAFTA. We also find that, workers far away from the US-Mexico border earn significantly lower wages in comparison to their counterparts in the border. But this effect diminishes after NAFTA, when tariffs decrease. As a result, we find that in urban areas, trade liberalization has reduced income inequalities among working age men.

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Bibliographic Info

Paper provided by Agricultural and Applied Economics Association in its series 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington with number 124740.

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Date of creation: 2012
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Handle: RePEc:ags:aaea12:124740

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Keywords: Income Distribution; Regional Disparities; Trade Liberalization; Internal-Migration; International Relations/Trade; Labor and Human Capital;

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  1. Krugman, Paul & Elizondo, Raul Livas, 1996. "Trade policy and the Third World metropolis," Journal of Development Economics, Elsevier, vol. 49(1), pages 137-150, April.
  2. Ranjan Priya, 2008. "Growth and Inequality in Closed and Open Economies: The Role of the Product Cycle," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(1), pages 1-37, September.
  3. Cragg, Michael Ian & Epelbaum, Mario, 1996. "Why has wage dispersion grown in Mexico? Is it the incidence of reforms or the growing demand for skills?," Journal of Development Economics, Elsevier, vol. 51(1), pages 99-116, October.
  4. Baylis, Katherine R. & Garduno-Rivera, Rafael & Piras, Gianfranco, 2009. "The distributional effects of NAFTA in Mexico: evidence from a panel of municipalities," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49463, Agricultural and Applied Economics Association.
  5. Mishra, Prachi, 2007. "Emigration and wages in source countries: Evidence from Mexico," Journal of Development Economics, Elsevier, vol. 82(1), pages 180-199, January.
  6. Finan, Frederico & Sadoulet, Elisabeth & de Janvry, Alain, 2002. "Measuring the Poverty Reduction Potential of Land in Rural Mexico," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt6xg1q0dg, Department of Agricultural & Resource Economics, UC Berkeley.
  7. Nicita, Alessandro, 2004. "Who benefited from trade liberalization in Mexico? Measuring the effects on household welfare," Policy Research Working Paper Series 3265, The World Bank.
  8. Patricio Aroca & William F. Maloney, 2005. "Migration, Trade, and Foreign Direct Investment in Mexico," World Bank Economic Review, World Bank Group, vol. 19(3), pages 449-472.
  9. Esquivel, Gerardo & Rodriguez-Lopez, Jose Antonio, 2003. "Technology, trade, and wage inequality in Mexico before and after NAFTA," Journal of Development Economics, Elsevier, vol. 72(2), pages 543-565, December.
  10. Ernesto Aguayo-Tellez & Jim Airola & Chinhui Juhn, 2010. "Did Trade Liberalization Help Women? The Case of Mexico in the 1990s," NBER Working Papers 16195, National Bureau of Economic Research, Inc.
  11. Nicita, Alessandro, 2009. "The price effect of tariff liberalization: Measuring the impact on household welfare," Journal of Development Economics, Elsevier, vol. 89(1), pages 19-27, May.
  12. Kurt Unger, 2005. "Regional Economic Development and Mexican Out-Migration," NBER Working Papers 11432, National Bureau of Economic Research, Inc.
  13. Jim Airola, 2008. "A Regional Analysis of the Impact of Trade and Foreign Direct Investment on Wages in Mexico, 1984-2000," Review of Development Economics, Wiley Blackwell, vol. 12(2), pages 276-290, 05.
  14. Chiquiar, Daniel, 2005. "Why Mexico's regional income convergence broke down," Journal of Development Economics, Elsevier, vol. 77(1), pages 257-275, June.
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