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

This paper studies the regional distribution of the benefits from trade in Mexico after NAFTA. Specifically, we ask whether or not NAFTA has 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. Further, to explicitly identify the effect of the trade agreement, we compare results for growth in traded and non-traded sectors. Given the spatial nature of these data, we make explicit use of spatial econometrics methods. We find that NAFTA caused the wealthy regions nearest to the border to grow faster than others, increasing regional disparity. Second, we find that larger municipalities experienced greater per-capita economic benefits from NAFTA. This effect is particularly noticeable in the north. Somewhat surprisingly, we find that regions with a less literate workforce and worse infrastructure grew faster than other areas after the trade agreement, decreasing regional disparity. We notice these redistributive effects occur primarily in the non-traded sectors.