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The Effect of Trade and FDI on Inter-industry Wage Differentials: The Case of Mexico

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  • Gabriela López Noria

Abstract

Taking advantage of the liberalization process under NAFTA, this paper assesses the relative importance of the degree of trade openness and Foreign Direct Investment (FDI) in explaining inter-industry wage differentials for the case of Mexico. Using INEGI's National Survey of Urban Employment for the period 1994-2004, the empirical analysis is conducted on two stages. In the first stage, individual wages are regressed on worker characteristics, job and firm attributes, informality and a set of industry indicators. In the second stage, inter-industry wage differentials (derived from the coefficient estimates of the industry indicators) are regressed on trade and FDI variables. The main findings show that trade openness does not have a robust and statistically significant effect on inter-industry wage differentials, whereas for the case of FDI, a positive nonlinear relationship is found to exist.

Suggested Citation

  • Gabriela López Noria, 2011. "The Effect of Trade and FDI on Inter-industry Wage Differentials: The Case of Mexico," Working Papers 2011-10, Banco de México.
  • Handle: RePEc:bdm:wpaper:2011-10
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    File URL: http://www.banxico.org.mx/publicaciones-y-discursos/publicaciones/documentos-de-investigacion/banxico/%7B0392ACC7-E257-6DB2-5AE3-BF1DFADD4C77%7D.pdf
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    References listed on IDEAS

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    1. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    2. Pozzolo, Alberto Franco & Nucci, Francesco, 2008. "Exchange Rate, Employment and Hours: What Firm-Level Data Say," Economics & Statistics Discussion Papers esdp08049, University of Molise, Dept. EGSeI.
    3. Jim Airola & Chinhui Juhn, 2008. "Wage Inequality in Post-Reform Mexico," Journal of Income Distribution, Journal of Income Distribution, vol. 17(1), pages 110-134, March.
    4. Paolo Figini & Holger Go¨rg, 2011. "Does Foreign Direct Investment Affect Wage Inequality? An Empirical Investigation," The World Economy, Wiley Blackwell, vol. 34(9), pages 1455-1475, September.
    5. Attanasio, Orazio & Goldberg, Pinelopi K. & Pavcnik, Nina, 2004. "Trade reforms and wage inequality in Colombia," Journal of Development Economics, Elsevier, vol. 74(2), pages 331-366, August.
    6. Erica L. Groshen, 1988. "Why do wages vary among employers?," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 19-38.
    7. Gittleman, Maury & Wolff, Edward N, 1993. "International Comparisons of Inter-industry Wage Differentials," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 39(3), pages 295-312, September.
    8. Esquivel, Gerardo & Rodriguez-Lopez, Jose Antonio, 2003. "Technology, trade, and wage inequality in Mexico before and after NAFTA," Journal of Development Economics, Elsevier, vol. 72(2), pages 543-565, December.
    9. Lane, Julia I. & Salmon, Laurie A. & Spletzer, James R., 2007. "Establishment Wage Differentials," Working Papers 403, U.S. Bureau of Labor Statistics.
    10. Nina Pavcnik & Andreas Blom & Pinelopi Goldberg & Norbert Schady, 2004. "Trade Liberalization and Industry Wage Structure: Evidence from Brazil," World Bank Economic Review, World Bank Group, vol. 18(3), pages 319-344.
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    More about this item

    Keywords

    Wage Inequality; Trade Liberalization; Foreign Direct Investment; NAFTA.;

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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