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Trade, skill-biased technical change and wages in Mexican manufacturing

  • Mauro Caselli

This paper analyses and quantifies the effects of trade liberalisation and skill-biased technical change, both exogenous and trade-induced, on the skill premium and real wages of unskilled and skilled workers in the Mexican manufacturing sector, using industry- and firm-level data for 1984-1990 from the Encuesta Industrial Anual.� The novelty of the paper lies in its strategy for identifying causality, which uses differences across industries over time in the relative price of machinery and equipment in the US as an instrument for skill-biased technical change.� The effect of trade-induced SBTC on wages, and especially on wage inequality, appears substantial.� The regressions show that trade liberalisation and changes in the relative price of equipment in the US, which induce exogenous SBTC in Mexico, explain one quarter of the increase in relative skilled wages between 1984 and 1990.� This rise in the skill premium due to SBTC and trade liberalisation mainly reflect a rise in real skilled wages, although with some specifications it was amplified by a fall in the real wages of unskilled workers.

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File URL: http://www.csae.ox.ac.uk/workingpapers/pdfs/2010-28text.pdf
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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number CSAE WPS/2010-28.

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Date of creation: 01 Aug 2010
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Handle: RePEc:oxf:wpaper:csae-wps/2010-28
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  1. Mary Amiti & Jozef Konings, 2005. "Trade Liberalization, Intermediate Inputs, and Productivity; Evidence From Indonesia," IMF Working Papers 05/146, International Monetary Fund.
  2. Andrew Bernard & Stephen Redding & Peter Schott, 2004. "Comparative advantage and heterogeneous firms," IFS Working Papers W04/24, Institute for Fiscal Studies.
  3. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2006. "Multi-Product Firms and Trade Liberalization," NBER Working Papers 12782, National Bureau of Economic Research, Inc.
  4. Elena Meschi & Erol Taymaz & Marco Vivarelli, 2010. "Trade, Technology And Skills: Evidence From Turkish Microdata," DISCE - Quaderni del Dipartimento di Scienze Economiche e Sociali dises1062, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  5. Ten Kate, Adriaan, 1992. "Trade liberalization and economic stabilization in Mexico: Lessons of experience," World Development, Elsevier, vol. 20(5), pages 659-672, May.
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  7. Verhoogen, Eric A, 2007. "Trade, Quality Upgrading and Wage Inequality in the Mexican Manufacturing Sector," CEPR Discussion Papers 6385, C.E.P.R. Discussion Papers.
  8. 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.
  9. Daron Acemoglu, 2000. "Technical Change, Inequality, and the Labor Market," NBER Working Papers 7800, National Bureau of Economic Research, Inc.
  10. Adriaan Ten Kate, 1989. "Notas Sobre La Apertura Comercial De Mexico, Experiencias Y Lecciones," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE.
  11. Alberto Behar, 2009. "Directed technical change, the elasticity of substitution and wage inequality in developing countries," Economics Series Working Papers 467, University of Oxford, Department of Economics.
  12. Gonzaga, Gustavo & Menezes Filho, Naércio Aquino & Terra, Maria Cristina T., 2005. "Trade Liberalization and the Evolution of Skill Earnings Differentials in Brazil," Economics Working Papers (Ensaios Economicos da EPGE) 585, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  13. 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.
  14. Berman, Eli & Machin, Stephen, 2000. "Skill-Based Technology Transfer around the World," Oxford Review of Economic Policy, Oxford University Press, vol. 16(3), pages 12-22, Autumn.
  15. Leonardi, Marco, 2003. "Firm Heterogeneity in Capital/Labor Ratios and Wage Inequality," IZA Discussion Papers 909, Institute for the Study of Labor (IZA).
  16. 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.
  17. Ariel Burstein & Jonathan Vogel, 2010. "Globalization, Technology, and the Skill Premium: A Quantitative Analysis," NBER Working Papers 16459, National Bureau of Economic Research, Inc.
  18. Berman, Eli & Bound, John & Griliches, Zvi, 1994. "Changes in the Demand for Skilled Labor within U.S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 367-97, May.
  19. Gonzague Vannoorenberghe, 2011. "Trade between symmetric countries, heterogeneous firms, and the skill premium," Canadian Journal of Economics, Canadian Economics Association, vol. 44(1), pages 148-170, February.
  20. Anderson, Edward, 2005. "Openness and inequality in developing countries: A review of theory and recent evidence," World Development, Elsevier, vol. 33(7), pages 1045-1063, July.
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