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Who benefited from trade liberalization in Mexico? Measuring the effects on household welfare

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  • Nicita, Alessandro

Abstract

This study performs an ex-post analysis of the effects of the trade liberalization in Mexico between 1989 and 2000, taking into account regional differences in the Mexican economy. The effects of trade liberalization are first translated into changes in regional prices and wages. Those estimates are plugged into a farm-household model to estimate the effect on households'welfare. The findings suggest that trade liberalization has affected domestic prices and labor income differently both across income groups and geographically across the country, hence producing diverse outcomes on different households. Regarding prices, the results indicate that trade liberalization haslowered relative prices of most non-animal agricultural products and, while reducing the cost of consumption, has reduced households'agricultural income, widening the income gap between urban and rural areas. The findings also show that trade liberalization has had diverse effects on wage rates. Skilled workers, for which trade liberalization has produced an increase in wages, have benefited relative to unskilled workers. Wages of unskilled workers have in many regions decreased as a result of trade liberalization. Similar differences are found in the geographic distribution of the benefits of trade liberalization, with the states closest to the U. S. border gaining threefold more relative to the least developed states in the south. Therefore trade liberalization, although beneficial, has contributed to an increase in inequality between the south and the north of the country, urban and rural areas, and skilled and unskilled labor. From a poverty perspective, the trade liberalization that occurred between 1989 and 2000 has had the direct effect of reducing poverty by about 3 percent, therefore lifting approximately 3 million individuals out of poverty.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3265.

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Date of creation: 01 Apr 2004
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Handle: RePEc:wbk:wbrwps:3265

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Keywords: Environmental Economics&Policies; Labor Policies; Markets and Market Access; Economic Theory&Research; Payment Systems&Infrastructure; Markets and Market Access; Environmental Economics&Policies; Economic Theory&Research; TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT; Access to Markets;

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References

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  1. Robert C. Feenstra & Gordon H. Hanson, . "Productivity Measurement And The Impact Of Trade And Technology On Wages: Estimates For The U.S., 1972-1990," Department of Economics 97-17, California Davis - Department of Economics.
  2. Ianchovichina, Elena & Nicita, Alessandro & Soloaga, Isidro, 2001. "Trade reform and household welfare : the case of Mexico," Policy Research Working Paper Series 2667, The World Bank.
  3. Nicita, Alessandro, 2004. "Efficiency and equity of a marginal tax reform - income, quality, and price elasticities for Mexico," Policy Research Working Paper Series 3266, The World Bank.
  4. Hanson, Gordon H, 1997. "Increasing Returns, Trade and the Regional Structure of Wages," Economic Journal, Royal Economic Society, vol. 107(440), pages 113-33, January.
  5. Koujianou Goldberg, Pinelopi & Pavcnik, Nina, 2003. "The response of the informal sector to trade liberalization," Journal of Development Economics, Elsevier, vol. 72(2), pages 463-496, December.
  6. Feenstra, Robert C., 1989. "Symmetric pass-through of tariffs and exchange rates under imperfect competition: An empirical test," Journal of International Economics, Elsevier, vol. 27(1-2), pages 25-45, August.
  7. L. Alan Winters, 2002. "Trade Liberalisation and Poverty: What are the Links?," The World Economy, Wiley Blackwell, vol. 25(9), pages 1339-1367, 09.
  8. repec:idb:brikps:52598 is not listed on IDEAS
  9. Reimer, Jeffrey J., 2002. "Estimating the Poverty Impacts of Trade Liberalization," GTAP Working Papers 1163, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  10. Porto, Guido G., 2003. "Trade reforms, market access, and poverty in Argentina," Policy Research Working Paper Series 3135, The World Bank.
  11. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-99, June.
  12. Edmonds, Eric V. & Pavcnik, Nina, 2005. "The effect of trade liberalization on child labor," Journal of International Economics, Elsevier, vol. 65(2), pages 401-419, March.
  13. Leamer, Edward E, 1996. "Wage Inequality from International Competition and Technological Change: Theory and Country Experience," American Economic Review, American Economic Association, vol. 86(2), pages 309-14, May.
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