The distributional effects of NAFTA in Mexico: Evidence from a panel of municipalities

Katherine R Baylis, Rafael Garduno-Rivera, Gianfranco Piras

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Abstract

This paper studies the regional distribution of benefits from trade in Mexico after the North American Free Trade Agreement (NAFTA). Specifically, we ask whether or not NAFTA increased the concentration of economic activity in Mexico. Unlike previous work which uses state-level data, we identify the effect of NAFTA on economic activity at the municipal level allowing us to observe detailed growth patterns across space. To explicitly identify the effect of the trade agreement, we contrast changes in economic activity in regions and sectors more and less likely to be affected by trade. Given the spatial nature of these data, we make use of spatial panel econometric methods. We find that NAFTA caused wealthy regions nearest to the border to grow faster than others, increasing regional disparity. We also find that economic activity in densely populated regions grew less quickly after NAFTA, particularly in the case of traded sectors. Thus, we see evidence that agglomeration lost some of its draw after NAFTA. We also find that regions with a smaller portion of high school graduates and lower levels of infrastructure saw their growth increase after the trade agreement, decreasing regional disparity. We notice these redistributive effects are strongest in the non-traded sectors.

Original languageEnglish (US)
Pages (from-to)286-302
Number of pages17
JournalRegional Science and Urban Economics
Volume42
Issue number1-2
DOIs
StatePublished - Jan 1 2012

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Keywords

  • Economic geography
  • Economic growth
  • Mexico
  • NAFTA
  • Regional disparities
  • Spatial panel data models
  • Trade liberalization
  • Transport cost

ASJC Scopus subject areas

  • Economics and Econometrics
  • Urban Studies

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