Effect of Tariff Liberalization on Mexico’s Income Distribution in the presence of Migration
AbstractThis 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 InfoPaper provided by Agricultural and Applied Economics Association in its series 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington with number 124740.
Date of creation: 2012
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Income Distribution; Regional Disparities; Trade Liberalization; Internal-Migration; International Relations/Trade; Labor and Human Capital;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-06-25 (All new papers)
- NEP-GEO-2012-06-25 (Economic Geography)
- NEP-INT-2012-06-25 (International Trade)
- NEP-LAB-2012-06-25 (Labour Economics)
- NEP-MIG-2012-06-25 (Economics of Human Migration)
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