Foreign Technology and Informal Employment: Evidence from Mexico

Pamela Bombarda and Maria Bas ()
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Maria Bas: Université de Cergy-Pontoise, THEMA

No 2023-02, THEMA Working Papers from THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise

Abstract: This work investigates the role of foreign technology embodied in imported inputs on labor allocation between informal and formal employment in Mexico. Using individual household data for Mexico (1993-2001), we exploit exogenous input tariff changes applied to United States (U.S.) products when Mexico enters the North American Free Trade Agreement (NAFTA) in 1994. The theoretical mechanisms considered are the foreign input cost reduction that increases revenues in the formal sector, and the foreign input-skilled biased channel. Within this framework, input-trade liberalization induces the reallocation of workers from informal to formal firms. Our empirical findings confirm these mechanisms: individuals working in manufacturing industries experiencing the average reduction in input tariffs (12 percentage points) are almost 4 percent more likely to work in formal rather than informal occupations. This effect is concentrated on high-skilled workers, further reinforcing the input-skilled biased complementarity channel.

Keywords: informal and formal employment; trade liberalization; household data (search for similar items in EconPapers)
JEL-codes: F12 F16 O14 O17 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-dev, nep-int, nep-iue and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ema:worpap:2023-02

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