Effect of NAFTA on Mexico's Income Distribution in the Presence of Migration

This paper asks how NAFTA affected income distribution within Mexico considering changes in internalmigration. Trade liberalization should theoretically increase the income of low-skilled workers in low-skilled labor-abundantdeveloping countries. Thus, by increasing the wages of poorer workers, one might expect that trade willdecrease income disparity. However, anecdotal evidence indicates that NAFTA increased the gap between rich andpoor in Mexico. Understanding the distributional effects of NAFTA on regional income is particularly important incountries with high levels of geographic inequality, such as Mexico. Because trade may affect wages differentlyacross regions within the country, accurate trade welfare measures must incorporate intra-national migration. Usinghousehold level data before and after NAFTA, I find geographic, gender and educational inequalities in thedistribution of Mexican income post NAFTA.