Trade liberalization and location: Empirical evidence for Mexican manufacturing industries

Abstract

In this paper, we provide evidence based on New Economic Geography Models and estimate the statistical effects of second nature advantages to shed some light on the locational transformation of the manufacturing sector in Mexico. Changes in regional industry shares and regional wages during trade liberalization show that the border states have gained at the expense of the old manufacturing belt in Mexico City. Furthermore, the statistical evidence indicates that that the relevant market has shifted from Mexico City to the USA. However, the relation between trade liberalization and industry location is subject to a considerable level of industry heterogeneity, suggesting the co-existence of processes of regional convergence and divergence.