North–South trade liberalization and returns to skill in the south: The case of Mexico

Authors

Gautam Hazarika, The University of Texas Rio Grande ValleyFollow
Rafael Otero, The University of Texas Rio Grande Valley

Document Type

Article

Publication Date

2011

Abstract

This study examines the effect of North American Free Trade Agreement (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 Heckscher–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 labour 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 neighbours. Hence, this study suggests trade with developed nations may lower returns to skill in developing nations.

Recommended Citation

Hazarika, G. and Otero, R., 2011. North–South trade liberalization and returns to skill in the south: The case of Mexico. The Journal of International Trade & Economic Development, 20(4), pp.449-465. https://doi.org/10.1080/09638190903003028

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

Publication Title

The Journal of International Trade & Economic Development

DOI

https://doi.org/10.1080/09638190903003028