79-vol. 40, no. 1, january-june 2025
Articles

The impact of trade on income inequality in Mexico

pdf

PDF
  • Andrea Bernini,
  • Olaf J. de Groot
Andrea Bernini
University of Oxford
Olaf J. de Groot
United Nations
DOI: https://doi.org/10.24201/ee.v40i1.e463

Published 2025-03-26

Keywords

  • trade and labor market,
  • trade policy,
  • income distribution,
  • inequality

How to Cite

Bernini, A., & J. de Groot, O. (2025). The impact of trade on income inequality in Mexico. Estudios Económicos De El Colegio De México, 40(1), 1–46. https://doi.org/10.24201/ee.v40i1.e463

Metrics

Abstract

Income inequality remains a significant concern in Mexico, despite a slight decrease in its measure in recent decades. This paper investigates the impact of changes in trade patterns resulting from the North American Free Trade Agreement (NAFTA) on income inequality in Mexico over the past 20 years. Through a decomposition into within- and between-sector inequality, this paper reveals that the contribution of the latter has increased in an environment characterized by decreasing overall income inequality. Trade accounts for approximately 14.5% of the total change in between-sector income inequality, representing the most substantial contribution among the factors identified in this study.

pdf

PDF

Downloads

Download data is not yet available.

References

  1. Ackerberg, D., K. Caves, and G. Frazer. 2006. Structural identification of production functions, MPRA Paper No. 38349, University Library of Munich.
  2. Agama, L.A. and C.A. McDaniel. 2002. The NAFTA preference and U.S.-Mexico trade, Office of Economics Working Paper No. 2002-10-A, U.S. International Trade Commission.
  3. Akerman, A., E. Helpman, O. Itskhoki, M.A. Muendler, and S. Redding. 2013. Sources of wage inequality, American Economic Review, 103(3): 214-219. DOI: https://doi.org/10.1257/aer.103.3.214
  4. Autor, D. and A. Salomons. 2018. Is automation labor-displacing? Productivity growth, employment, and the labor share, NBER Working Paper No. 24871. DOI: https://doi.org/10.3386/w24871
  5. Besedes, T., T. Kohl, and J. Lake. 2020. Phase out tariffs, phase in trade?, Journal of International Economics, 127: 103385. DOI: https://doi.org/10.1016/j.jinteco.2020.103385
  6. Beveren, I.V. 2012. Total factor productivity estimation: A practical review, Journal of Economic Surveys, 26(1): 98-128. DOI: https://doi.org/10.1111/j.1467-6419.2010.00631.x
  7. Bliss, C. 1988. Trade and development, in H. Chenery and T. Srinivasan (eds.), Handbook of Development Economics, Volume II, Amsterdam/New York, North-Holland.
  8. Blyde, J., M. Busso, K. Park, and D. Romero. 2023. Short and long-run labor market adjustment to import competition, Review of International Economics, 31(4): 1552-1569. DOI: https://doi.org/10.1111/roie.12677
  9. Burfisher, M.E., S. Robinson, and K. Thierfelder. 2001. The impact of NAFTA on the United States, Journal of Economic Perspectives, 15(1): 125-144. DOI: https://doi.org/10.1257/jep.15.1.125
  10. Caliendo, L. and F. Parro. 2014. Estimates of the trade and welfare effects of NAFTA, DOI: https://doi.org/10.1093/restud/rdu035
  11. The Review of Economic Studies, 82(1): 1-44.
  12. Castillo, M.D. 2015. La Magnitud de la Desigualdad en el Ingreso y la Riqueza en México: Una Propuesta de Cálculo, Mexico City, The United Nations Economic Commission for Latin America and the Caribbean.
  13. Chiquiar, D. 2008. Globalization, regional wage differentials and the Stolper-Samuelson Theorem: Evidence from Mexico, Journal of International Economics, 74(1): 70-93. DOI: https://doi.org/10.1016/j.jinteco.2007.05.009
  14. Cragg, M. and M. Epelbaum. 1996. Why has wage dispersion grown in Mexico? Is it the incidence of reforms or the growing demand for skills?, Journal of Development Economics, 51(1): 99-116. DOI: https://doi.org/10.1016/S0304-3878(96)00427-0
  15. Dussel-Peters, E. 2018. Cadenas Globales de Valor: Metodología, Teoría y Debates, Mexico, Universidad Nacional Autónoma de México. DOI: https://doi.org/10.22201/cechimex.9786073002899p.2018
  16. Duval-Hernández, R., G.S. Fields, and G.H. Jakubson. 2017. Cross-sectional versus panel income approaches: Analyzing income distribution changes for the case of Mexico, Review of Income and Wealth, 63(4): 685-705. DOI: https://doi.org/10.1111/roiw.12271
  17. Eberhardt, M. and C. Helmers. 2010. Untested assumptions and data slicing: A critical review of firm-level production function estimators, Discussion Paper Series No. 513, Department of Economics, University of Oxford.
  18. ECLAC. 2016. Productividad y Brechas Estructurales en México, Mexico City, The United Nations Economic Commission for Latin America and the Caribbean.
  19. ECLAC. 2018. The Inefficiency of Inequality, Santiago de Chile, The United Nations Economic Commission for Latin America and the Caribbean.
  20. ECLAC. 2020. MagicPlus: Módulo para Analizar el Crecimiento del Comercio Internacional, The United Nations Economic Commission for Latin America and the Caribbean.
  21. ECLAC. 2024. CEPALStat, https://statistics.cepal.org/portal/cepalstat/index.html?lang=es
  22. Edwards, S. 1993. Openness, trade liberalization, and growth in developing countries, Journal of Economic Literature, 31(3): 1358-1393.
  23. Esquivel, G. and G. Cruces. 2011. The dynamics of income inequality in Mexico since NAFTA, Economia, 12(1): 155-188. DOI: https://doi.org/10.1353/eco.2011.0009
  24. Esquivel, G., N. Lustig, and J. Scott. 2010. Un decenio de reducción de la desigualdad en México. ¿Fuerzas del mercado o acción del estado?, in L.F. López-Calva and N. Lustig (eds.), La Disminución de la Desigualdad en la América Latina, Washington D.C., United Nations Development Programme.
  25. Feder, G. 1983. On exports and economic growth, Journal of Development Economics, 12(1-2): 59-73. DOI: https://doi.org/10.1016/0304-3878(83)90031-7
  26. Feenstra, R.C. and G.H. Hanson. 1996. Foreign investment, outsourcing, and relative wages, in R.C. Feenstra and G.M. Grossman (eds.), The Political Economy of Trade Policy: Papers in Honor of Jagdish Bhagwati, Cambridge, MIT Press. DOI: https://doi.org/10.3386/w5121
  27. Feenstra, R.C. and G.H. Hanson. 1997. Foreign direct investment and relative wages: Evidence from Mexico’s maquiladoras, Journal of International Economics, 42(3-4): 371-393. DOI: https://doi.org/10.1016/S0022-1996(96)01475-4
  28. Griliches, Z. and J. Mairesse. 1995. Production functions: The search for identification, NBER Working Paper No. 5067. DOI: https://doi.org/10.3386/w5067
  29. Hakobyan, S. and J. McLaren. 2016. Looking for local labor market effects of NAFTA, The Review of Economics and Statistics, 98(4): 728-741. DOI: https://doi.org/10.1162/REST_a_00587
  30. Hanson, G.H. 2003. What has happened to wages in Mexico since NAFTA?, NBER Working Paper No. 9563. DOI: https://doi.org/10.3386/w9563
  31. Helpman, E., O. Itskhoki, M.A. Muendler, and S. J. Redding. 2017. Trade and inequality: From theory to estimation, The Review of Economic Studies, 84(1): 357-405. DOI: https://doi.org/10.1093/restud/rdw025
  32. Husain, S. and M.S. Islam. 2016. A test for the Cobb Douglas production function in manufacturing sector: The case of Bangladesh, International Journal of Business and Economics Research, 5(5): 149-154. DOI: https://doi.org/10.11648/j.ijber.20160505.13
  33. INEGI. 1994. Clasificación de Actividades Económicas de la Encuesta Nacional de Empleo Urbano (CAE-ENEU-94), Mexico, Instituto Nacional de Estadística, Geografía e Informática.
  34. INEGI. 1995. Instructivo Para la Codificación de Escolaridad, Mexico, Instituto Nacional de Estadística, Geografía e Informática.
  35. Jordaan, J.A. 2011. Cross-sectional estimation of FDI spillovers when FDI is endogenous: OLS and IV estimates for Mexican manufacturing industries, Applied Economics, 43(19): 2451-2463. DOI: https://doi.org/10.1080/00036840903262977
  36. Kahhat, J. 2010. Labor earnings inequality: The demand for and supply of skills, in L.F. López-Calva and N. Lustig (eds.), Declining Inequality in Latin America: A Decade of Progress, Washington D.C., Brookings Institution Press.
  37. Krueger, A.O. 1980. Trade Policy as an input to development, American Economic Review, 70(2): 288-292. DOI: https://doi.org/10.3386/w0466
  38. López, J.E. and J. Rebolledo. 2016. Productivity in Mexico: Trends, drivers and institutional framework, International Productivity Monitor, 30: 28-42.
  39. Markusen, J. and S. Zahniser 1999. Liberalization and incentives for labor migration: Theory with applications to NAFTA, in J. deMelo, R. Faini, and K. Zimmerman (eds.), Trade and Migration: The Controversies and the Evidence, Cambridge, Cambridge University Press.
  40. Marrocu, E., R. Paci, and R. Pala. 2000. Estimation of total factor productivity for regions and sectors in Italy: A panel cointegration approach, Working Paper CRENoS No. 200016, Centre for North South Economic Research, University of Cagliari and Sassari. DOI: https://doi.org/10.2139/ssrn.254390
  41. McMillan, M.S. and D. Rodrik. 2011. Globalization, structural change and productivity growth, NBER Working Paper No. 17143. DOI: https://doi.org/10.3386/w17143
  42. OECD. 2018. OECD.Stat, https://data-explorer.oecd.org/
  43. Pack, H. 1988. Industrialization and trade, in H. Chenery and T.N. Srinivasan, Handbook of Development Economics, Vol, 1, 333-380, Elsevier. DOI: https://doi.org/10.1016/S1573-4471(88)01012-5
  44. Padilla-Perez, R. and F.G. Villarreal. 2017. Structural change and productivity growth in Mexico, 1990-2014, Structural Change and Economic Dynamics, 41: 53-63. DOI: https://doi.org/10.1016/j.strueco.2017.02.002
  45. Ram, R. 1987. Exports and economic growth in developing countries: Evidence from time-series and cross-section data, Economic Development and Cultural Change, 36(1): 51-72. DOI: https://doi.org/10.1086/451636
  46. Ram, R. 1990. Imports and economic growth: A cross-country study, International Economics, 43(1): 45-66.
  47. Ramos, M.E., J. Garza-Rodríguez, and D.E. Gibaja-Romero. 2022. Automation of employment in the presence of industry 4.0: The case of Mexico, Technology in Society, 68: 101837. DOI: https://doi.org/10.1016/j.techsoc.2021.101837
  48. Ranaldi, M. and B. Milanović. 2022. Capitalist systems and income inequality, Journal of Comparative Economics, 50(1): 20-32. DOI: https://doi.org/10.1016/j.jce.2021.07.005
  49. Romalis, J. 2007. NAFTA’s and CUSFTA’s impact on international trade, The Review of Economics and Statistics, 89(3): 416-435. DOI: https://doi.org/10.1162/rest.89.3.416
  50. Satchi, M. and J. Temple. 2009. Labor markets and productivity in developing countries, Review of Economic Dynamics, 12(1): 183-204. DOI: https://doi.org/10.1016/j.red.2008.09.001
  51. Shorrocks, A.F. 1982. Inequality decomposition by factor components, Econometrica, 50(1): 193-211. DOI: https://doi.org/10.2307/1912537
  52. UNCTAD. 2017. UNCTADstat, https://unctadstat.unctad.org/EN/
  53. United Nations. 2024. UN Comtrade, https://comtradeplus.un.org/
  54. Van Biesebroeck, J. 2007. Robustness of productivity estimates, The Journal of Industrial Economics, 55(3): 529-569. DOI: https://doi.org/10.1111/j.1467-6451.2007.00322.x
  55. Vargas, J. A. 2020. Efectos del Comercio Internacional en el Mercado Laboral Mexicano: La Competencia China en el Mercado de los Estados Unidos, 2004-2017, Mexico, The United Nations Economic Commission for Latin America and the Caribbean.
  56. Villarreal, F.G. 2014. Monetary policy and inequality in Mexico, MPRA Paper No. 57074.
  57. World Bank. 1993. The East Asian Miracle: Economic Growth and Public Policy, Oxford, Oxford University Press.
  58. World Bank. 2019. World Development Indicators, https://databank.worldbank.org/source/world-development-indicators
  59. Zhang, X. and K.H. Zhang. 2003. How does globalisation affect regional inequality within a developing country? Evidence from China, Journal of Development Studies, 39(4): 47-67. DOI: https://doi.org/10.1080/713869425
  60. Zhu, S.C. and D. Trefler. 2005. Trade and inequality in developing countries: A general equilibrium analysis, Journal of International Economics, 65(1): 21-48. DOI: https://doi.org/10.1016/j.jinteco.2003.11.005