Regional Adjustment to Trade Liberalization

50 Pages Posted: 23 May 2011

See all articles by Gordon H. Hanson

Gordon H. Hanson

University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS); National Bureau of Economic Research (NBER)

Date Written: April 1994

Abstract

In this paper, I study the effect of economic integration with the United States on state-industry employment growth in Mexico. I disentangle the effects of two opposing forces on regional labor demand: transport-cost considerations, which, all else equal, encourage firms to relocate their activities to regions with relatively good access to foreign markets, and agglomeration economies, which, all else equal, reinforce the pre-trade pattern of industry location. I find that trade liberalization has strong effects on industry location. Consistent with the transport-costs hypothesis, post-trade employment growth is higher in state-industries that are relatively close to the United States. The results on agglomeration effects are mixed. Employment growth is higher where agglomeration in upstream and downstream industries is higher, but not where the agglomeration of firms in the same industry is higher. The results suggest trade liberalization has contributed to the decomposition of the manufacturing belt in and around Mexico City and the formation of broadly specialized industry centers located in northern Mexico, relatively close to the United States. The North American Free Trade Agreement is likely to reinforce these movements.

Suggested Citation

Hanson, Gordon H., Regional Adjustment to Trade Liberalization (April 1994). NBER Working Paper No. w4713. Available at SSRN: https://ssrn.com/abstract=1847347

Gordon H. Hanson (Contact Author)

University of California, San Diego (UCSD) - Graduate School of International Relations and Pacific Studies (IRPS) ( email )

9500 Gilman Drive
La Jolla, CA 92093-0519
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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