This paper studies the impact of NAFTA on informality and real wages in Mexico. Using a dynamicindustry model with firm heterogeneity, it is predicted that import tariff elimination could reduce theincidence of informality by making more profitable to some firms to enter the formal sector, forcingthe less productive informal firms to exit the industry, and inducing the most productive formal firmsto engage in trade. The model also predicts market share reallocations towards the most productivefirms, and an increase in real wages due to the increased labour demand by these firms. Using data onMexican and U.S. import tariffs together with the Mexican National Survey of Urban Labour(ENEU), I find that reductions in the Mexican import tariffs are significantly related to reductions inthe likelihood of informality in the tradable industries. I also find that informality decreases less inindustries with higher levels of import penetration, while it decreases more in industries that arerelatively more export oriented. Finally, I confirm that the elimination of the Mexican import tariffs isrelated to an increase in real wages, and that the elimination of the U.S. import tariff has contributedto the expansion of the formal-informal wage differentials.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number
dp0763.
Find related papers by JEL classification: F00 - International Economics - - General - - - General F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General F14 - International Economics - - Trade - - - Country and Industry Studies of Trade F15 - International Economics - - Trade - - - Economic Integration F16 - International Economics - - Trade - - - Trade and Labor Market Interactions J00 - Labor and Demographic Economics - - General - - - General J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
This paper has been announced in the following NEP Reports:
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)