North American Economic Integration and Industry Location

Abstract

Does regional economic integration affect the location of economic activity inside countries? In this paper, I discuss recent academic literature on whether the movement towards free trade in North America has influenced the spatial organization of production in Canada, Mexico, or the United States. In Mexico, closer economic ties with the United States appear to have contributed to a contraction of employment in the Mexico City manufacturing belt, a rapid expansion of manufacturing employment in northern Mexico, and an increase in the wage premia paid to skilled workers. The effects of economic integration on industry location in Canada and the United States seem to have been much weaker. On exception to this finding is U.S. cities on the Mexican border, whose employment growth is strongly positively correlated with export production in neighboring Mexican regions. I also discuss implications of a possible hemispheric free trade agreement.