Post on 05-Feb-2022
Trade and Migration: NAFTA and CAFTA
Raymond RobertsonMacalester College
Overview
� Trade and Migration in NAFTA� Trade and Migration in CAFTA� Implications for Workers
Trade and Migration in NAFTA
� Mexican and U.S. labor markets are closely integrated (Robertson 2000)
� Effects seem to be driven by migration� Goal of NAFTA was to increase investment
and trade with hopes of reducing migration� Migration was not liberalized
Effects of NAFTA
� Increase in trade� Increase in investment� Rate of convergence of Mexican wage to U.S.
wages did not increase following NAFTA (Robertson 2005)
U.S. Border Enforcement and Wage Convergence
Tiju
ana-
U.S
. Wag
e R
atio
Year
Bor
der
Enf
orce
men
t (Sa
n D
iego
)
Tijuana-U.S. Wage Ratio Border Enforcement (San Diego)
1986 1988 1990 1992 1994 1996 1998 2000 2002
-.031262
.009961
119802
592927
U.S. and Mexican Workers
� Prior to NAFTA, U.S. and Mexican production workers were substitutes
� After NAFTA, U.S. and Mexican production workers are complements
� Consistent with a restructuring of North American production structure
� [Robertson (forthcoming)]
U.S. and MexicanManufacturing Employment
.8.9
11.
1
1994Jan 1996Jan 1998Jan 2000Jan 2002Jan 2004Jan 2006JanTime
US Prod Emp 94=1 MX NonProd Emp 94=1MX Prod Emp 94=1
Mexican-Born Shareof U.S. Manufacturing
Mex
Sha
re U
.S. M
FG
time
Mex
ican
Rem
ittan
ces
Mex Share U.S. MFG Mexican Remittances
1995 1997 1999 2001 2003 2005 2007
.11523
.460933
789.99
6428.34
Effects of Remittances
� Increased investment in education� Business start-ups
� Substitute for lack of domestic financial markets
� Provide additional liquidity� Increasing reservation wages� Appreciating exchange rates
Exchange Rate Effects
� Increasing capital flows prop up exchange rates
� Rising exchange rates reduces comparative advantage by raising prices
� Increases pressure on domestic producers as imports become cheaper
� Significant but small effects in Mexico
Trade, Migration, and CAFTA
� Focus on El Salvador � Part of a 5-country study of the effects of
globalization on working conditions supported by the World Bank (book should be coming out in 2008)
El Salvador: TradeEl Salvador: Main Export AggregatesEl Salvador: Main Export Aggregates
(US$ millions)(US$ millions)
Source: Banco Central de Reserva.Source: Banco Central de Reserva.
Growth = 21%
0
400
800
1,200
1,600
2,000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006e
US
$ m
illio
n
Maquila (US$ million) B-No Tradicionales A-Tradicionales
El Salvador: RemittancesEl Salvador: Family RemittancesEl Salvador: Family Remittances
(US$ millions)(US$ millions)
Source: Banco Central de Reserva.Source: Banco Central de Reserva.
Growth = 21%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
US
$ m
illio
n
0
2
4
6
8
10
12
14
16
18
% o
f GD
P
Remittances (US$ million) % of GDP (right axis)
Framework for Globalization and Working Conditions� Traditional economy exhibits dichotomy
between agriculture and manufacturing (services emerge later)
� Increases in export opportunities draw workers from agriculture into industry
� In El Salvador, apparel is a primary export-oriented FDI-receiving sector
Labor Demand in ApparelA
ppar
el E
mp.
Sha
re
year
App
arel
Wag
e P
rem
ium
Apparel Emp. Share Apparel Wage Premium
1995 1997 1999 2001 2003
.05
.06
.07
.08
.09
-.2
-.15
-.1
-.05
0
.05
Effects of MigrationEl Salvador: Labor Force ParticipationEl Salvador: Labor Force Participation(Percentage of Active Population/Working Age Population)(Percentage of Active Population/Working Age Population)
Source: EHPM, DIGESTYC.Source: EHPM, DIGESTYC.
Growth = 21%
68.5
35.3
50.9
67.7
38.7
52.3
66.5
38.6
51.7
67.4
39.541.9
55.952.4
0
20
40
60
80
100
MEN WOMEN REMITTANCES NO REMITT. TOTAL
perc
enta
ge
1997 2000 2004 2005
Inter-Industry Wage Differentials2000 2004 2005
Age 5.5% 3.7% 3.9%Age Squared -0.1% 0.0% 0.0%Years of Education 1.3% 5.6% 5.7%Urban dummy 18.9% 8.2% 6.9%Female -8.9% -13.6% -13.2%Public Sector dummy 57.6% 34.1% 37.1%Remittances dummy 1.8% 2.6% 4.5%
Ag Food -29.3% -13.4% -15.4%Ag Other 6.4% 24.8% -8.3%Husb. & Fishing 9.3% 30.6% 28.4%Mining 17.3% 28.9% 24.3%Utilities 50.4% 46.0% 33.2%Construction 13.8% 17.0% 20.0%Sales -5.1% -8.7% -7.0%Transport 27.5% 28.1% 21.2%Financial Interm. 35.0% 7.4% 4.3%Public Admin. 16.5% 15.3% 6.5%Education 60.2% 41.3% 38.8%Social Services 23.1% 15.5% 14.0%Domestic Service -79.8% -56.5% -52.5%Others 91.6% 36.6%Food Bev 8.9% 0.4% 0.8%Mfg Other 14.6% 3.2% 8.2%Textile -17.6% -14.4% -9.5%Apparel 12.4% 7.3% 7.1%Wood -43.1% -41.4% -29.5%
Implications
� Remittances contribute to appreciating exchange rates, dampening exports
� Remittances increase reservation wages and increase labor costs, dampening exports
� End of the Multi-Fiber Agreement limits export-related jobs, making migration more attractive
Conclusions
� Clear evidence that trade and migration both increase labor-market integration
� NAFTA countries seem to be complementary� Workers can work either here or there,
supporting the hypothesis that migration and trade are substitutes
� Important to facilitate opportunities for export within Latin American countries