Effect of NAFTA on Mexico's Income Distribution in the Presence of Migration
This paper asks how NAFTA affected income distribution within Mexico considering changes in internal migration. Trade liberalization should theoretically increase the income of low-skilled workers in low-skilled labor-abundant developing countries. Thus, by increasing the wages of poorer workers, one might expect that trade will decrease income disparity. However, anecdotal evidence indicates that NAFTA increased the gap between rich and poor in Mexico. Understanding the distributional effects of NAFTA on regional income is particularly important in countries with high levels of geographic inequality, such as Mexico. Because trade may affect wages differently across regions within the country, accurate trade welfare measures must incorporate intra-national migration. Using household level data before and after NAFTA, I find geographic, gender and educational inequalities in the distribution of Mexican income post NAFTA.
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