The effect of Chinese import competition on Mexican local labor markets

This paper contributes to the literature of the effect of globalization on labor markets in developing economies by analyzing the Mexican case. I exploit variation across Mexican regions in import exposure stemming from initial differences in industry specialization in order to estimate the effect Chinese competition had on local Mexican labor markets. Also, by taking advantage of the Mexican exports’ high dependence on the U.S. market, I estimate the effect that China-caused trade diversion had on Mexican labor markets. I find that the increase in competition decreased the employment share in manufacturing for the average Mexican local labor market. This effect was found to be larger for regions with high exposure to Chinese competition in the U.S. market, showing that there was a significant, negative indirect effect from China's trade growth. I also find that workers’ mobility across local labor markets increased due to this negative shock. Wages remained largely unaffected.