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North-South Trade Liberalization and Returns to Skill in the South: The Case of Mexico

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Author Info
Hazarika, Gautam () (University of Texas at Brownsville)
Otero, Rafael () (University of Texas at Brownsville)
Abstract

This study examines the effect of NAFTA, an instance of North-South trade liberalization, on returns to skill in Mexico. Mexico is abundant in low-skill workers relative to the US and Canada, and so, by the Hecksher-Ohlin-Samuelson trade model, NAFTA ought to have raised the relative earnings of low-skill workers, that is, lowered returns to skill in Mexico. Analysis of Mexican labor micro-data yields the finding that while returns to skill in industries producing tradeables have risen, ceteris paribus, since Mexico embarked upon trade liberalization by joining the GATT in 1986, this rise was less pronounced by 1999 in industries liberalized relatively rapidly by NAFTA, launched in 1994, than in industries liberalized relatively slowly by this phased trade treaty. This is considered evidence of NAFTA holding back rise in returns to skill, since it is plausible such a dampening would have been more marked in industries more rapidly exposed to trade with Mexico's skill abundant northern neighbors. Hence, this study suggests trade with developed nations may lower returns to skill in developing nations. It is speculated this may slow the pace of private human capital accumulation in developing nations, with negative consequences for their economic growth.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3788.

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Date of creation: Oct 2008
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Handle: RePEc:iza:izadps:dp3788

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Related research
Keywords: human capital; Heckscher-Ohlin model; NAFTA;

Find related papers by JEL classification:
F11 - International Economics - - Trade - - - Neoclassical Models of Trade
I21 - Health, Education, and Welfare - - Education - - - Analysis of Education

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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.:
  1. James R. Tybout, 2000. "Manufacturing Firms in Developing Countries: How Well Do They Do, and Why?," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 11-44, March. [Downloadable!] (restricted)
  2. Gary Burtless, 1995. "International Trade and the Rise in Earnings Inequality," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 800-816, June. [Downloadable!] (restricted)
  3. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," NBER Working Papers 3577, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Gordon H. Hanson & Ann Harrison, 1999. "Trade liberalization and wage inequality in Mexico," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 52(2), pages 271-288, January.
  5. Young, Alwyn, 1991. "Learning by Doing and the Dynamic Effects of International Trade," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 369-405, May. [Downloadable!] (restricted)
  6. Andre Varella Mollick, 2008. "Relative wages, labor supplies and trade in Mexican manufacturing: Evidence from two samples," Journal of International Trade & Economic Development, Taylor and Francis Journals, vol. 17(2), pages 213-241. [Downloadable!] (restricted)
  7. Robertson, Raymond, 2004. "Relative prices and wage inequality: evidence from Mexico," Journal of International Economics, Elsevier, vol. 64(2), pages 387-409, December. [Downloadable!] (restricted)
  8. Grossman, Gene M & Helpman, Elhanan, 1994. "Endogenous Innovation in the Theory of Growth," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 23-44, Winter. [Downloadable!] (restricted)
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  9. Raymond Robertson, 2000. "Trade Liberalisation and Wage Inequality: Lessons from the Mexican Experience," The World Economy, Blackwell Publishing, vol. 23(6), pages 827-849, 06. [Downloadable!] (restricted)
  10. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July. [Downloadable!] (restricted)
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