Abstract

http://ssrn.com/abstract=1983163
 


 



Maquiladoras and Informality: A Mixed Blessing


Benedikt Heid


Ifo Institute for Economic Research - International Trade; University of Bayreuth - Chair of Empirical Economics

Mario Larch


University of Bayreuth - Department of Law and Economics; University of Bayreuth; CESifo; Ifo Institute for Economic Research; GEP at the University of Nottingham

Alejandro Riano


University of Nottingham - Faculty of Law and Social Sciences

December 30, 2011

CESifo Working Paper Series No. 3689

Abstract:     
Mexico experienced a tremendous expansion of its export-processing maquila sector during the 1990s. At the same time, a large proportion of its labor force remains employed in the informal sector. Since one of the main objectives of the maquiladora program was to increase formal employment, we study how the rapid increase in maquiladora activity has affected labor market outcomes in Mexico. We develop a heterogeneous firm model with imperfect labor markets that captures salient features of the Mexican economy such as the differences between maquila and non-maquila manufacturing plants and the existence of an informal sector. We calibrate the model's parameters to match key cross-sectional moments characterizing the Mexican economy. Our quantitative model indicates that the expansion of the maquila sector during the 1990s produced an increase in informality of 0.9% and a reduction in the skill premium and overall welfare of 2.7% and 3.7%, respectively. A counterfactual experiment in which we shut down the informal sector completely results in a reduction of Mexican welfare of 33.5% relative to the equilibrium with an informal sector.

Number of Pages in PDF File: 32

Keywords: offshoring, informal sector, maquiladoras, trade and labor markets, Mexico

JEL Classification: F120, F140, F160, F230, O240

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Date posted: January 11, 2012  

Suggested Citation

Heid, Benedikt and Larch, Mario and Riano, Alejandro, Maquiladoras and Informality: A Mixed Blessing (December 30, 2011). CESifo Working Paper Series No. 3689. Available at SSRN: http://ssrn.com/abstract=1983163

Contact Information

Benedikt Heid
Ifo Institute for Economic Research - International Trade ( email )
Poschinger Str. 5
Munich, 01069
Germany
University of Bayreuth - Chair of Empirical Economics ( email )
Universitatsstr 30
D-95447 Bayreuth
Germany
Mario Larch
University of Bayreuth - Department of Law and Economics ( email )
Universitätsstraße 30
Bayreuth, 95447
Germany
0049 / (0) 921 - 55 6240 (Phone)
University of Bayreuth ( email )
Universitatsstr 30
D-95447 Bayreuth
Germany
CESifo ( email )
Poschinger Str. 5
Munich, DE-81679
Germany
Ifo Institute for Economic Research ( email )
Poschinger Str. 5
Munich, 01069
Germany
GEP at the University of Nottingham ( email )
University Park
Nottingham, NG7 2RD
United Kingdom
Alejandro Riano (Contact Author)
University of Nottingham - Faculty of Law and Social Sciences ( email )
Nottingham, NG8 1BB
United Kingdom
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