Gerardo Esquivel

Technology, trade, and wage inequality in Mexico before and after NAFTA

Abstract Over the past few years, there has been a substantial increase in wage inequality between skilled and unskilled workers in Mexico. This increment in the wage gap coincided with both a period of rapid technological change and the process of trade liberalization in Mexico that began in the mid-1980s. Using a methodology suggested by Leamer [Leamer, E., 1998. In search of Stolper–Samuelson linkages between international trade and lower wages. In: Susan Collins (Ed.), Imports, Exports and the American Worker, Brookings Institution, pp. 141–202], we separate out the effects of technological progress and trade on the real wage evolution of skilled and unskilled workers in Mexicos manufacturing industry for the periods 1988–1994 and 1994–2000. We find that, as implied by the Stolper–Samuelson theorem, trade liberalization would have led to a reduction in the wage gap in Mexico in the first period. This effect, however, was offset by the large negative impact of technological progress on the real wage of unskilled workers. On the other hand, during the period 1994–2000 the effect of trade liberalization on the wage gap was nil, thus suggesting that the slight increase in wage inequality that occurred in this period was also driven by technological progress.

Explaining Currency Crises

This paper examines the determinants of currency crises with a panel annual dataset for 30 countries between 1975 and 1996. We estimate a probit model with random effects and find that high rates of seignorage, current account imbalances, real exchange rate misalignment, low foreign exchange reserves, negative terms of trade shocks, poor growth performance, and a measure of regional contagion all have significant power to explain the presence of currency crises in our sample. In general, our results can be interpreted as supporting both first and second-generation models of currency crises. Various robustness tests confirm the validity of these results. We also find that currency crises have an important predictable component. Using our benchmark regression we are able to predict correctly a majority of the currency crises that occurred within our sample.

The Dynamics of Income Inequality in Mexico since NAFTA

This paper reviews the pattern of income inequality in Mexico since 1994. It shows that in the past few years there has been an important reduction of income inequality in Mexico, which has almost reverted the sharp increase in inequality observed between 1984 and 1994. Using a Gini decomposition exercise we conclude that labor income, transfers and remittances have all played an important role in this process. We also argue that the equalizing effect of labor income and the reduction of wage inequality in Mexico can be explained by a structural change in Mexico‟s workforce composition in terms of education and experience. In general, we conclude that the recent reduction of inequality in Mexico is due to the interaction of both, the market and the State.

Export Processing Zones in Central America

This paper analyzes Export Processing Zones (EPZs) from a worldwide perspective and draws lessons from the accumulated experience in several countries. It argues that developing countries can take advantage of the opportunities provided by EPZs for the acquisition of superior technology, upgrading of labor and managerial skills, and greater access to foreign markets. The paper then examines the development and economic significance of EPZs and similar export-oriented regimes in Central America. This analysis shows that during the 1990s the economic significance of EPZs and other export-oriented regimes increased rapidly, although not uniformly, throughout Central America. The paper ends with a series of considerations and policy proposals for EPZs development in the region. Among other policies, this paper focuses on the promotion of industry diversification of export-oriented activities, on the development of stronger backward linkages, and on the upgrading of the export-oriented legislation in Central America.

Latin America Confronting the Asian Crisis

This paper evaluates the repercussions of the Asian crisis for Latin America and discusses policy options available to some of the major countries in the region. The paper starts by reviewing the contributions of several theoretical models to our understanding of crises. Next, it discusses the lessons that can be drawn from previous regional crises. Then, it evaluates the current situation of four of the largest Latin American countries and discusses policy options and prospects. It is shown that the Latin American crisis of the early 1980s was very different in nature from both the Mexican crisis of 1994-95 and the recent Asian crisis. In the early 1980s, the crisis had a clear fiscal root in all the countries analyzed (except Chile) while Mexico?s and Asia?s troubles were unrelated to fiscal problems. In contrast, a private credit boom was present in the earlier episode only in Chile, while it clearly shows up in Mexico and most of the Asian countries that fell in crisis. Large current account deficits and substantial real exchange rate appreciation, however, have been a common feature in all the episodes analyzed. Looking at the effects of the current crisis among the larger countries of Latin America, Brazil appears as the most vulnerable economy. Brazil needs to take further steps to reduce its twin deficits in the current account and the public budget, to flexibilize its exchange rate policy, and to implement additional structural reforms. Chile, though hit hard by a terms of trade shock, is structurally healthy. It faces, however, a major challenge from its heavy exposure to copper and to the Asian region. Weaker regional demand and the loss of competitiveness associated with the Asian crisis will deteriorate Argentinas external accounts and provoke a significant slowdown. Because of its heavy dependence on the Brazilian market, Argentina will face severe problems if Brazil falls into a crisis. Mexico benefits from its significant export diversification and its close integration to the U.S. economy but faces severe pressures from lower oil prices and, especially, from its weak banking sector. Capital controls, though popular, are no solution at times of crisis. A correction of the fundamental macroeconomic imbalances, on the other hand, is a necessary but not sufficient condition to prevent currency crises.

The External Debt Problem in Central America: Honduras, Nicaragua, and the HIPC Initiative

This paper reviews the foreign debt burden in Central America with special emphasis on Honduras and Nicaragua, which have a large debt overhang. Several indicators suggest that this foreign debt seriously impedes economic growth in both nations. Honduras and Nicaragua, the poorest countries of Central America, have lagged behind the rest of the region in growth, resulting in an increase in regional income inequality during the 1990s. Analysis suggests that Honduras and Nicaragua require alleviation of their foreign debt as a prerequisite to sustained growth. This paper also evaluates the prospects of these countries to qualify for the new initiative aimed at reducing the debt burden of the highly indebted poor countries (the so-called HIPC Initiative). It concludes that Honduras and Nicaragua have favorable prospects of qualifying for the HIPC Initiative.

QUE SABEMOS REALMENTE SOBRE LAS CRISIS CAMBIARIAS

Resumen: Este trabajo revisa algunos de los aspectos centrales sobre las crisis cambiarias, y enfatiza tres resultados principales. Primero, la inestabilidad mundial, medida por el numero de crisis cambiarias en un grupo de paises seleccionado, ha mostrado una tendencia claramente decreciente en los ultimos anos. Segundo, con base en varios trabajos recientes, hemos adquirido ya una buena idea sobre los determinantes mas importantes de las crisis cambiarias. Por lo regular, estos eventos pueden explicarse satisfactoriamente con un numero relativamente pequeno de indicadores macroeconomicos. Tercero, las crisis cambiarias no son completamente impredecibles. De hecho, usando un modelo sencillo para el periodo 1996-2001, una evaluacion de las predicciones fuera de muestra presenta resultados muy favorables.

Central America’s Foreign Debt Burden and the HIPC Initiative

This paper reviews the foreign debt burden in Central America with special emphasis on Honduras and Nicaragua. These countries have a large debt overhang and they have lagged behind the rest of the region in terms of economic growth. Our work suggests that Honduras and Nicaragua require alleviation of their foreign debt as a prerequisite to achieve sustained economic growth. The paper also reviews the initiative aimed at reducing the debt burden of the highly indebted poor countries (the HIPC Initiative) and evaluates alternative scenarios of debt reduction for both Honduras and Nicaragua. It ends with a critical assessment of the implications of the fiscal and openness criteria established in the HIPC Initiative.

Growth is (really) good for the (really) rich

This paper analyses the relationship between mean income and the income of the rich. Our methodology closely follows that of Dollar and Kraay (Journal of Economic Growth, 2002, 7, 195), but instead of looking at the bottom of the distribution, we focus on the top. We use panel data from the World Top Incomes database, which collects top income data from several countries using tax returns as the raw source. We define the “rich” as earners in the top 10%, 1%, 0.1% and 0.01% of the income distribution. Using data since 1980, we find that economic growth is good for the rich in the sense that the mean income of the top decile of the distribution grows in the same proportion as that of the whole population. However, we also find that the income of earners in the top percentile of the distribution and above grows faster than average income: therefore, economic growth is really good for the really rich. We also find that during economic downturns the average income of top earners responds proportionally less to changes in mean income than during economic expansions. Our results are consistent with the increase in inequality that has been recently observed at the top part of the distribution in many countries, and they are robust to different specifications, country samples and time observations.