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Foreign technology and informal employment: Evidence from Mexico

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  • Bas, Maria
  • Bombarda, Pamela

Abstract

We investigate how access to foreign technology embodied in imported inputs affects formalization in Mexico. Using household microdata, we exploit the significant reduction in Mexico’s tariffs on U.S. goods (both final and intermediate) across manufacturing industries between 1993 and 2001. We find that individuals working in manufacturing industries experiencing an average reduction in input tariffs (12 percentage points) are 4 percentage points more likely to be formally employed. The effect is particularly pronounced among high-skilled workers, consistent with an input-skill complementarity mechanism. In contrast, lower output tariffs, by inducing tougher import competition, increased the probability of informal employment by more than 1.5 percentage points. These findings enhance our understanding of the role that access to advanced technology, facilitated by trade liberalization, plays in promoting formal employment.

Suggested Citation

  • Bas, Maria & Bombarda, Pamela, 2026. "Foreign technology and informal employment: Evidence from Mexico," Journal of Development Economics, Elsevier, vol. 181(C).
    • Handle: RePEc:eee:deveco:v:181:y:2026:i:c:s0304387826000155
    DOI: 10.1016/j.jdeveco.2026.103732
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    Keywords

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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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