Spatial Equilibrium and the Regional Effects of Trade Liberalization : Evidence from Mexico

This paper examines the regional impacts of trade liberalization in terms of college wage premia, housing costs, and urban amenities in the context of the 1994 North American Free Trade Agreement (NAFTA) and using granular data on Mexican municipalities between 1990 and 2010. I measure local exposure to international trade by constructing a market access database of each municipality's lowest-cost route to the closest US truck port. Municipalities facing larger trade exposure experienced: (1) declines in local wage differences between college and non-college graduates, both in nominal and real terms; (2) smaller increases in local urban amenities. I interpret these results under the notion of spatial equilibrium in which non-monetary urban amenities compensate for gaps in real wages across localities