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