Income Divergence between Mexican States in the 1990s: The Role of Skill Premium

During the period 1940-1985 the variance of average incomes across Mexican states fell by 60 percent. Beginning in 1985, however, and coinciding with the adoption of trade liberalization policies and other market-oriented reforms, state incomes began to diverge. Using microdata from the 1990 and 2000 Mexican Population Censuses, this study decomposes the recent divergence into components due to economy-wide changes in skill prices and components due to state-specific changes in the composition of workers. The study finds that the rise in the education premium hindered the progress of poor states and raised the variance of average state wages and labor earnings. However, educational attainment mostly compensated for this income-widening effect. State-level regressions reveal that the initial level of education, size of the agricultural sector, and distance from the U.S. border were important factors, while public infrastructure was not. While the border states clearly benefited from increased trade and opening of the economy, I find no evidence that skill demand or the immigration of highly educated workers particularly favored these states. Copyright 2006 Blackwell Publishing.

The impact of European integration on wage differentials in the Bavarian–Czech border region

Regional labour markets, Border regions, International trade, Wage structure, J31, R23, F16,

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

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.NAFTA, returns to schooling, Heckscher-Ohlin model,