The Impact of Trade on Income Inequality in Mexico

Abstract

Income inequality remains an important issue in Mexico, despite a slight decrease in its measure in recent decades. This paper examines whether changes in trade patterns following the North American Free Trade Agreement (NAFTA) have affected income inequality in Mexico over the past 20 years. Through a decomposition into between- and within-sector inequality, this paper finds that the contribution of the former has increased in an environment characterized by decreasing income inequality. Trade explains around 14.5% of the total change in income inequality and forms the largest contribution of any of the factors identified in this paper.

Keywords: Trade and Labor Market, Trade Policy, Income Distribution, Inequality

JEL Classification: F16, O24, O15, D63