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North-South Trade Liberalization and Returns to Skill in the South: The Case of Mexico

Author

Listed:
  • Hazarika, Gautam

    () (The University of Texas Rio Grande Valley)

  • Otero, Rafael

    () (University of Texas at Brownsville)

Abstract

This study examines the effect of NAFTA, an instance of North-South trade liberalization, on returns to skill in Mexico. Mexico is abundant in low-skill workers relative to the US and Canada, and so, by the Hecksher-Ohlin-Samuelson trade model, NAFTA ought to have raised the relative earnings of low-skill workers, that is, lowered returns to skill in Mexico. Analysis of Mexican labor micro-data yields the finding that while returns to skill in industries producing tradeables have risen, ceteris paribus, since Mexico embarked upon trade liberalization by joining the GATT in 1986, this rise was less pronounced by 1999 in industries liberalized relatively rapidly by NAFTA, launched in 1994, than in industries liberalized relatively slowly by this phased trade treaty. This is considered evidence of NAFTA holding back rise in returns to skill, since it is plausible such a dampening would have been more marked in industries more rapidly exposed to trade with Mexico's skill abundant northern neighbors. Hence, this study suggests trade with developed nations may lower returns to skill in developing nations. It is speculated this may slow the pace of private human capital accumulation in developing nations, with negative consequences for their economic growth.

Suggested Citation

  • Hazarika, Gautam & Otero, Rafael, 2008. "North-South Trade Liberalization and Returns to Skill in the South: The Case of Mexico," IZA Discussion Papers 3788, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp3788
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    References listed on IDEAS

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    1. James R. Tybout, 2000. "Manufacturing Firms in Developing Countries: How Well Do They Do, and Why?," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 11-44, March.
    2. Gene M. Grossman & Elhanan Helpman, 1994. "Endogenous Innovation in the Theory of Growth," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 23-44, Winter.
    3. Andre Varella Mollick, 2008. "Relative wages, labor supplies and trade in Mexican manufacturing: Evidence from two samples," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 17(2), pages 213-241.
    4. Gary Burtless, 1995. "International Trade and the Rise in Earnings Inequality," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 800-816, June.
    5. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," NBER Working Papers 3577, National Bureau of Economic Research, Inc.
    6. Raymond Robertson, 2000. "Trade Liberalisation and Wage Inequality: Lessons from the Mexican Experience," The World Economy, Wiley Blackwell, vol. 23(6), pages 827-849, June.
    7. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 369-405.
    8. Gordon H. Hanson & Ann Harrison, 1999. "Trade Liberalization and Wage Inequality in Mexico," ILR Review, Cornell University, ILR School, vol. 52(2), pages 271-288, January.
    9. Robertson, Raymond, 2004. "Relative prices and wage inequality: evidence from Mexico," Journal of International Economics, Elsevier, vol. 64(2), pages 387-409, December.
    10. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    More about this item

    Keywords

    human capital; Heckscher-Ohlin model; NAFTA;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education

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