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Maquiladoras and Informality: A Mixed Blessing

32 Pages Posted: 11 Jan 2012  

Benedikt Heid

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

Mario Larch

University of Bayreuth - Faculty of Law, Business 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

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Date Written: December 30, 2011

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.

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

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

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: https://ssrn.com/abstract=1983163

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
Bayreuth, D-95447
Germany

Mario Larch

University of Bayreuth - Faculty of Law, Business and Economics ( email )

Universitätsstraße 30
Bayreuth, 95447
Germany
0049 / (0) 921 - 55 6240 (Phone)

University of Bayreuth ( email )

Universitatsstr 30
Bayreuth, D-95447
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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