Economists generally agree that trade will benefit a country’s economy. However, trade also affects the
location of economic activity (Behrens et al. 2007, Krugman 1991, Hanson 1998a). Particularly for a
country with great geographic disparity, such as Mexico, the distributional effects of trade are at least
as important as the overall effect. Benefits of trade were expected to be concentrated mainly in the
northern states of Mexico - due to their proximity to the U.S. market - but empirical evidence is mixed 2005, Smith 1990). On the other hand, standard trade theory might predict that given Mexico’s relative
abundance of low-skilled labor, poorer regions with large pools of unskilled labor might benefit more
from the trade agreement. In this paper, we study the distributional effects of NAFTA throughout
Mexico. Specifically, we ask whether NAFTA increased the concentration of economic activity in
Mexico.
Economists generally agree that trade will benefit a country’s economy. However, trade also affects thelocation of economic activity (Behrens et al. 2007, Krugman 1991, Hanson 1998a). Particularly for acountry with great geographic disparity, such as Mexico, the distributional effects of trade are at leastas important as the overall effect. Benefits of trade were expected to be concentrated mainly in thenorthern states of Mexico - due to their proximity to the U.S. market - but empirical evidence is mixed 2005, Smith 1990). On the other hand, standard trade theory might predict that given Mexico’s relativeabundance of low-skilled labor, poorer regions with large pools of unskilled labor might benefit morefrom the trade agreement. In this paper, we study the distributional effects of NAFTA throughoutMexico. Specifically, we ask whether NAFTA increased the concentration of economic activity inMexico.
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