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Trade, FDI, migration, and the place premium: Mexico and the United States

Author

Listed:
  • Davide Gandolfi

    (Uppsala University)

  • Timothy Halliday

    (University of Hawaii at Manoa
    University of Hawaii Economic Research Organization
    IZA)

  • Raymond Robertson

    () (IZA
    Texas A&M University)

Abstract

Large wage differences between countries (“place premiums”) are well documented. Theory suggests that factor price convergence should follow increased migration, capital flows, and commercial integration. All three have increased between the United States and Mexico over the last 25 years. This paper evaluates the degree of wage convergence between these countries during the period 1988 and 2011. We match survey and census data from Mexico and the United States to estimate the change in wage differentials for observationally identical workers over time. We find very little evidence of convergence. What evidence we do find is most likely due to factors unrelated to US–Mexico integration. While migration, trade, and FDI may reduce the US–Mexico wage differential, these effects are small when compared to the overall wage gap.

Suggested Citation

  • Davide Gandolfi & Timothy Halliday & Raymond Robertson, 2017. "Trade, FDI, migration, and the place premium: Mexico and the United States," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 153(1), pages 1-37, February.
  • Handle: RePEc:spr:weltar:v:153:y:2017:i:1:d:10.1007_s10290-016-0260-2
    DOI: 10.1007/s10290-016-0260-2
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    More about this item

    Keywords

    Migration; Labor-market integration; Factor price equalization;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration

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