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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
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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. 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.
  2. Peter K. Schott, 2001. "One Size Fits All? Heckscher-Ohlin Specialization in Global Production," NBER Working Papers 8244, National Bureau of Economic Research, Inc.
  3. 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.
  4. Robert C. Feenstra & Gordon H. Hanson, 1995. "Foreign Direct Investment and Relative Wages: Evidence from Mexico's Maquiladoras," NBER Working Papers 5122, National Bureau of Economic Research, Inc.
  5. Andrew B. Bernard & Stephen Redding & Peter K. Schott, 2005. "Factor price equality and the economies of the United States," LSE Research Online Documents on Economics 3693, London School of Economics and Political Science, LSE Library.
  6. Gordon H. Hanson & Ann Harrison, 1995. "Trade, Technology, and Wage Inequality," NBER Working Papers 5110, National Bureau of Economic Research, Inc.
  7. Davis, D.R. & Weinstein, D.E., 1999. "An Account of Global Factor Trade," Working Papers 435, Research Seminar in International Economics, University of Michigan.
  8. Deardorff, A.V., 1991. "The Possibility of Factor Price Equalization, Revisited," Working Papers 277, Research Seminar in International Economics, University of Michigan.
  9. Verhoogen, Eric, 2007. "Trade, Quality Upgrading and Wage Inequality in the Mexican Manufacturing Sector," IZA Discussion Papers 2913, Institute for the Study of Labor (IZA).
  10. Courant, P.N. & Deardorff, A.V., 1989. "International Trade With Lumpy Countries," Papers 90-04, Michigan - Center for Research on Economic & Social Theory.
  11. 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.
  12. 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.
  13. 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.
  14. 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.
  15. Debaere, Peter & Demiroglu, Ufuk, 2003. "On the similarity of country endowments," Journal of International Economics, Elsevier, vol. 59(1), pages 101-136, January.
  16. 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.
  17. Lucinda Vargas, 1999. "The binational importance of the maquiladora industry," Southwest Economy, Federal Reserve Bank of Dallas, issue Nov, pages 1-5.
  18. Robertson, Raymond, 2004. "Relative prices and wage inequality: evidence from Mexico," Journal of International Economics, Elsevier, vol. 64(2), pages 387-409, December.
  19. Gordon H. Hanson, 2003. "What Has Happened to Wages in Mexico since NAFTA?," NBER Working Papers 9563, National Bureau of Economic Research, Inc.
  20. Topel, Robert H, 1986. "Local Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages S111-43, June.
  21. 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.
  22. 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.
  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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