Globalisation works in Mexico

June 30, 2005

Free Market Foundation

Mexico underwent drastic tariff and quota reductions in the late 1980s and the early 1990s. A National Bureau of Economic Research study finds that Mexico benefited from increased trade and the parts of the country most open to globalisation have fared the best.

The author notes that as a result of trade liberalisation, the share of international trade in Mexicos gross domestic product (GDP) nearly tripled from 11 per cent in 1980 to 32 per cent in 2002. However, not all regions have benefited equally:

Average labour earnings decreased by 10 per cent in low exposure states (which are located mainly in the south) relative to high exposure states.

Also, during the 1990s the low exposure areas saw a comparative increase in workers who could not earn enough to keep their families out of poverty.

Liberalisation also helped northern states weather the economic crisis while incomes in both regions suffered during the peso collapse of the mid-1990s, the deterioration was far less severe in the high exposure states.

Some argue that the northern regions have always been richer than the southern regions. The author responds that prior to trade liberalisation, the income difference between the two regions was actually narrowing. However, once trade barriers were dropped, the income difference began to grow again.

Source: Matthew Davis, Globalisation and Poverty in Mexico, NBER Digest, April 2005; based upon: Gordon Hanson, Globalisation, Labour, Income, and Poverty in Mexico, National Bureau of Economic Research, Working Paper No. 11027, January 2005.

For text: http://www.nber.org/digest/apr05/w11027.html

For abstract: http://papers.nber.org/papers/w11027

For more on Globalisation: http://www.ncpa.org/iss/tra/

FMF Policy Bulletin/ 21 June 2005