Trade, FDI, migration, and the place premium: Mexico and the United States

Large wage differences between countries ("place premiums") are well documented. Theory suggests that factor price convergence should follow increased migration, capital flows, and commercial integration. All three have increased between the United States and Mexico over the last 25 years....

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Bibliographic Details
Published in:Review of world economics 2017-02, Vol.153 (1), p.1-37
Main Authors: Gandolfi, Davide, Halliday, Timothy, Robertson, Raymond
Format: Article
Language:English
Subjects:
Censuses
Economic indicators
Economic Policy
Economic theory
Economics
Economics and Finance
Emigration
Equilibrium
European Integration
Factor price equalization
Foreign investment
Global economy
Immigration
Income inequality
International Economics
International trade
Labor market
Labor-market integration
Macroeconomics/Monetary Economics//Financial Economics
Migration
Noncitizens
North American Free Trade Agreement
Original Paper
Per capita
Prices
Public policy
Studies
Trade
Trade liberalization
Trade restrictions
US exports
Wage differential
Wages & salaries
Workers
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Summary:Large wage differences between countries ("place premiums") are well documented. Theory suggests that factor price convergence should follow increased migration, capital flows, and commercial integration. All three have increased between the United States and Mexico over the last 25 years. This paper evaluates the degree of wage convergence between these countries during the period 1988 and 2011. We match survey and census data from Mexico and the United States to estimate the change in wage differentials for observationally identical workers over time. We find very little evidence of convergence. What evidence we do find is most likely due to factors unrelated to US–Mexico integration. While migration, trade, and FDI may reduce the US–Mexico wage differential, these effects are small when compared to the overall wage gap.
ISSN:1610-2878
1610-2886
1610-2886
DOI:10.1007/s10290-016-0260-2