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Is Mexico A Lumpy Country?

  • Andrew B. Bernard
  • Raymond Robertson
  • Peter K. Schott

Mexico's experience before and after trade liberalization presents a challenge to neoclassical trade theory. Though labor abundant, it nevertheless exported skill-intensive goods and protected labor-intensive sectors prior to liberalization. Post-liberalization, the relative wage of skilled workers rose. Courant and Deardorff (1992) have shown theoretically that an extremely uneven distribution of factors within a country can induce behavior at odds with overall comparative advantage. We demonstrate the importance of this insight for developing countries. We show that Mexican regions exhibit substantial variation in skill abundance, offer significantly different relative factor rewards, and produce disjoint sets of industries. This heterogeneity helps to both undermine Mexico's aggregate labor abundance and motivate behavior that is more consistent with relative skill abundance.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10898.

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Date of creation: Nov 2004
Date of revision:
Publication status: published as Andrew B. Bernard & Raymond Robertson & Peter K. Schott, 2010. "Is Mexico a Lumpy Country?," Review of International Economics, Blackwell Publishing, vol. 18(5), pages 937-950, November.
Handle: RePEc:nbr:nberwo:10898
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  1. Hanson, Gordon H, 1997. "Increasing Returns, Trade and the Regional Structure of Wages," Economic Journal, Royal Economic Society, vol. 107(440), pages 113-33, January.
  2. Raymond Robertson, 2000. "Trade Liberalisation and Wage Inequality: Lessons from the Mexican Experience," The World Economy, Wiley Blackwell, vol. 23(6), pages 827-849, 06.
  3. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, MIT Press, vol. 123(2), pages 489-530, 05.
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  6. Cragg, Michael Ian & Epelbaum, Mario, 1996. "Why has wage dispersion grown in Mexico? Is it the incidence of reforms or the growing demand for skills?," Journal of Development Economics, Elsevier, vol. 51(1), pages 99-116, October.
  7. Courant, P.N. & Deardorff, A.V., 1989. "International Trade With Lumpy Countries," Papers 90-04, Michigan - Center for Research on Economic & Social Theory.
  8. Andrew B. Bernard & Stephen Redding & Peter K. Schott, 2005. "Factor Price Equality and the Economies of the United States," CEP Discussion Papers dp0696, Centre for Economic Performance, LSE.
  9. Leamer, Edward E, 1987. "Paths of Development in the Three-Factor, n-Good General Equilibrium Model," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 961-99, October.
  10. Repetto, A. & Ventura, J., 1997. "The Leontief-Trefler Hypothesis and Factor Price Insensitivity," Working papers 97-13, Massachusetts Institute of Technology (MIT), Department of Economics.
  11. Feenstra, Robert C. & Hanson, Gordon H., 1997. "Foreign direct investment and relative wages: Evidence from Mexico's maquiladoras," Journal of International Economics, Elsevier, vol. 42(3-4), pages 371-393, May.
  12. Debaere, Peter & Demiroglu, Ufuk, 2003. "On the similarity of country endowments," Journal of International Economics, Elsevier, vol. 59(1), pages 101-136, January.
  13. Revenga, Ana, 1997. "Employment and Wage Effects of Trade Liberalization: The Case of Mexican Manufacturing," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages S20-43, July.
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  15. Deardorff, A.V., 1991. "The Possibility of Factor Price Equalization, Revisited," Working Papers 277, Research Seminar in International Economics, University of Michigan.
  16. Debaere, Peter, 2004. "Does lumpiness matter in an open economy?: Studying international economics with regional data," Journal of International Economics, Elsevier, vol. 64(2), pages 485-501, December.
  17. Robertson, Raymond, 2004. "Relative prices and wage inequality: evidence from Mexico," Journal of International Economics, Elsevier, vol. 64(2), pages 387-409, December.
  18. Lucinda Vargas, 1999. "The binational importance of the maquiladora industry," Southwest Economy, Federal Reserve Bank of Dallas, issue Nov, pages 1-5.
  19. Roberto Alvarez & Raymond Robertson, 2004. "Exposure to foreign markets and plant-level innovation: evidence from Chile and Mexico," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 13(1), pages 57-87.
  20. Hanson, G.H. & Harrison, A., 1995. "Trade, Technology and Wage Inequality," Papers 95-20, Columbia - Graduate School of Business.
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  22. 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.
  23. Wood, Adrian, 1997. "Openness and Wage Inequality in Developing Countries: The Latin American Challenge to East Asian Conventional Wisdom," World Bank Economic Review, World Bank Group, vol. 11(1), pages 33-57, January.
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