Four questions are especially pertinent to this research. First, can we attribute the pre-trade reform agglomeration of industry in Mexico City to high trade barriers9 If the combination of trade protection and increasing returns to scale helped create the Mexico City manufacturing belt, then trade reform may substantially alter industry location in the country. Second, how has the pattern of regional economic growth in Mexico changed following the opening to trade? By comparing economic growth across regions before and after trade reform, I can identify the factors that influence industry location, including agglomeration economies and the importance of access to the U.S. market. Third, how has increased Mexico-U.S. trade affected labor earnings in Mexico? comments
Expanded foreign trade in Mexico has coincided with large inflows of U.S. investment, which are concentrated along the Mexico-U.S. border, and a shift to more specialized industrial production. These events may have changed factor intensities in production, which could alter the rewards to different types of factors. Fourth, has Mexico-U.S. integration influenced regional employment in the United States? Given the relative size of the two economies, it may not be surprising to find that increased Mexico-U.S. trade influences industry location in Mexico. To also find that Mexico-U.S. trade matters for industry location in the United States would suggest that changes in trade policy can have strong effects on regional economies.
Prior to trade liberalization in Mexico, Mexico City was the country’s principal industrial center. In Hanson (1996a, 1997a), I exploit the information contained in the regional structure of wages to assess whether increasing returns to scale contributed to the geographic concentration of economic activity in the country.