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Effect of Tariff Liberalization on Mexico’s Income Distribution in the presence of Migration

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  • Garduno-Rivera, Rafael
  • Baylis, Katherine R.

Abstract

This paper studies how the North American Free Trade Agreement (NAFTA) affected income distribution within Mexico given internal migration. In low-skilled labor-abundant developing countries, trade liberalization should theoretically increase the income of low-skilled workers, decreasing income disparity. However, anecdotal evidence indicates that NAFTA increased the gap between rich and poor in Mexico, and empirical evidence is mixed (Chiquiar, 2005; Nicita, 2009; Hanson, 2007). Because trade may affect wages differently across regions within the country, accurate measures of wage effects must incorporate intra-national migration. We specifically consider rural to urban migration and find that working age men with low incomes get a boost from the NAFTA in their wages while NAFTA has a negative effect for those with high incomes. There is a slight increase in migration in the years after NAFTA. We also find that, workers far away from the US-Mexico border earn significantly lower wages in comparison to their counterparts in the border. But this effect diminishes after NAFTA, when tariffs decrease. As a result, we find that in urban areas, trade liberalization has reduced income inequalities among working age men.

Suggested Citation

  • Garduno-Rivera, Rafael & Baylis, Katherine R., 2012. "Effect of Tariff Liberalization on Mexico’s Income Distribution in the presence of Migration," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124740, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea12:124740
    DOI: 10.22004/ag.econ.124740
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    References listed on IDEAS

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    International Relations/Trade; Labor and Human Capital;

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