Trade and Migration:
NAFTA and CAFTA
Raymond Robertson
Macalester 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
Tijuana-U.S. Wage Ratio
Border Enforcement (San Diego)
592927
-.031262
119802
Tijuana-U.S. Wage Ratio
Border Enforcement (San Diego)
.009961
1986
1988
1990
1992
1994 1996
Year
1998
2000
2002
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)]
.8
.9
1
1.1
U.S. and Mexican
Manufacturing Employment
1994Jan
1996Jan
1998Jan
US Prod Emp 94=1
MX Prod Emp 94=1
2000Jan
Time
2002Jan
2004Jan
MX NonProd Emp 94=1
2006Jan
Mexican-Born Share
of U.S. Manufacturing
Mex Share U.S. MFG
Mexican Remittances
6428.34
.11523
789.99
Mexican Remittances
Mex Share U.S. MFG
.460933
1995
1997
1999
2001
time
2003
2005
2007
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: Trade
El Salvador: Main Export Aggregates
(US$ millions)
Maquila (US$ million)
B-No Tradicionales
2,000
A-Tradicionales
Growth = 21%
US$ million
1,600
1,200
800
400
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
e
Source: Banco Central de Reserva.
El Salvador: Remittances
El Salvador: Family Remittances
(US$ millions)
Remittances (US$ million)
3,500
% of GDP (right axis)
Growth = 21%
18
16
3,000
14
2,500
2,000
10
8
1,500
6
1,000
4
500
2
0
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: Banco Central de Reserva.
% of GDP
US$ million
12
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 exportoriented FDI-receiving sector
Labor Demand in Apparel
Apparel Emp. Share
Apparel W age Premium
.05
0
.08
-.05
.07
-.1
.06
-.15
-.2
.05
1995
1997
1999
year
2001
2003
Apparel Wage Premium
Apparel Emp. Share
.09
Effects of Migration
El Salvador: Labor Force Participation
(Percentage of Active Population/Working Age Population)
100
1997
2000
2004
2005
Growth = 21%
80
percentage
68.5 67.7
66.5 67.4
60
55.9
40
35.3
38.7 38.6 39.5
52.4
50.9 52.3 51.7
41.9
20
0
MEN
WOMEN
Source: EHPM, DIGESTYC.
REMITTANCES
NO REMITT.
TOTAL
Inter-Industry Wage Differentials
Age
Age Squared
Years of Education
Urban dummy
Female
Public Sector dummy
Remittances dummy
2000
5.5%
-0.1%
1.3%
18.9%
-8.9%
57.6%
1.8%
2004
3.7%
0.0%
5.6%
8.2%
-13.6%
34.1%
2.6%
2005
3.9%
0.0%
5.7%
6.9%
-13.2%
37.1%
4.5%
Ag Food
Ag Other
Husb. & Fishing
Mining
Utilities
Construction
Sales
Transport
Financial Interm.
Public Admin.
Education
Social Services
Domestic Service
Others
Food Bev
Mfg Other
Textile
Apparel
Wood
-29.3%
6.4%
9.3%
17.3%
50.4%
13.8%
-5.1%
27.5%
35.0%
16.5%
60.2%
23.1%
-79.8%
91.6%
8.9%
14.6%
-17.6%
12.4%
-43.1%
-13.4%
24.8%
30.6%
28.9%
46.0%
17.0%
-8.7%
28.1%
7.4%
15.3%
41.3%
15.5%
-56.5%
36.6%
0.4%
3.2%
-14.4%
7.3%
-41.4%
-15.4%
-8.3%
28.4%
24.3%
33.2%
20.0%
-7.0%
21.2%
4.3%
6.5%
38.8%
14.0%
-52.5%
0.8%
8.2%
-9.5%
7.1%
-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