The effect of trade and FDI on inter-industry wage differentials: the case of Mexico

Available from: 
October 2013
Paper author(s): 
Gabriela López Noria (Banco de México)
Topic: 
Globalization - Trade
Labor
Microeconomics - Competition - Productivity
Year: 
2013

Taking advantage of the liberalization process under NAFTA, this paper assesses the relative importance of the degree of trade openness and Foreign Direct Investment (FDI) in explaining inter-industry wage differentials for the case of Mexico. Using INEGI’s National Survey of Urban Employment for the period 1994-2004, the empirical analysis is conducted on two stages. In the first stage, individual wages are regressed on worker characteristics, job and firm attributes, informality and a set of industry indicators. In the second stage, inter-industry wage differentials (derived from the coefficient estimates of the industry indicators) are regressed on trade and FDI variables. The main findings show that trade openness does not have a robust and statistically significant effect on inter-industry wage differentials, whereas for the case of FDI, a positive nonlinear relationship is found to exist.

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Research section: 
Lacea 2013 annual meeting
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