Working Paper: NBER ID: w10898
Authors: Andrew B. Bernard; Raymond Robertson; Peter K. Schott
Abstract: 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.
Keywords: Trade Liberalization; Income Inequality; Regional Skill Distribution
JEL Codes: F11; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| geographic concentration of skilled workers (J61) | regional relative wages (J31) |
| regional skill abundance (R11) | relative skilled wages (J31) |
| regional skill abundance (R11) | specialization in skill-intensive goods (J24) |
| specialization in skill-intensive goods (J24) | net importer of labor-intensive products (F16) |
| geographic concentration of skilled workers (J61) | divergence in relative wages (J31) |
| geographic concentration of skilled workers (J61) | product mix specialization (L15) |