Trade, FDI, Migration, and the Place Premium: Mexico and the United States

Davide Gandolfi, Timothy Halliday and Raymond Robertson

Chapter 7 in Not Just Neighbors:The Remarkable Economic Relationships in North America, 2026, pp 239-290 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Large wage differences between countries (“place premiums”) are well documented. Theory suggests that factor price convergence should follow increased migration, capital flows, and commercial integration. All three have increased between the United States and Mexico over the last 25 years. This paper evaluates the degree of wage convergence between these countries during the period 1988 and 2011. We match survey and census data from Mexico and the United States to estimate the change in wage differentials for observationally identical workers over time. We find very little evidence of convergence. What evidence we do find is most likely due to factors unrelated to US–Mexico integration. While migration, trade, and FDI may reduce the US–Mexico wage differential, these effects are small when compared to the overall wage gap.

Keywords: US–Mexico Trade; Economic Integration; North American Competitiveness; USMCA / NAFTA; Global Supply Chains; Migration and Labor Markets; Wage Inequality; Cross-border Economics; Trade Policy and Development; Regional Economic Integration; US–Mexico Relations; Bilateral Trade Flows; Border Economy; Globalization and Inequality; Policy Responses to Trade Shocks (search for similar items in EconPapers)
JEL-codes: F13 F15 F22 J61 O24 P16 P52 (search for similar items in EconPapers)
Date: 2026
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