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Trade, FDI, Migration, and the Place Premium: Mexico and the United States

In: Not Just Neighbors The Remarkable Economic Relationships in North America

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  • Davide Gandolfi
  • Timothy Halliday
  • Raymond Robertson

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, 2026. "Trade, FDI, Migration, and the Place Premium: Mexico and the United States," World Scientific Book Chapters, in: Raymond Robertson (ed.), Not Just Neighbors The Remarkable Economic Relationships in North America, chapter 7, pages 239-290, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789819825295_0007
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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • P52 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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