Isidro Soloaga

Trade Reform and Poverty: The Case of Mexico

We use a two-step computationally simple procedure to analyse the effects of Mexicoss potential unilateral tariff liberalisation on real incomes. First, we use the CGE model provided by the Global Trade Analysis Project (GTAP) as the new price generator. Second, we apply the price changes to Mexican household data in order to assess the effects of the policy simulation on poverty and income distribution. Although Mexico widely liberalised most of its imports by the mid 90s, one salient feature is its membership in the North American Free Trade Agreement (NAFTA) with Canada and United States. By choosing GTAP as the price generator, we are able to model the differential tariff structure. Even starting with a low level of tariff protection, simulation results show that the impact of tariff reform on welfare will be positive in general for all expenditure deciles. We find that, when we assume non-homothetic individual preferences, trade liberalisation benefits people in the poorer deciles more than those in the richer ones. Copyright Blackwell Publishers Ltd 2002.

Trade Reform and Household Welfare: The Case of Mexico

The authors use a two-step, computationally simple procedure to analyze the effects of Mexicos potentially unilateral tariff liberalization. First, they use a computable general equilibrium model provided by the Global Trade Analysis Project (GTAP) as the new price generator. Second, they apply the price changes to Mexican household data to assess the effects of the simulated policy on poverty and income distribution. By choosing GTAP as the price generator, the authors are able to model Mexicos differential tariff structure appropriately: almost zero for North American Free Trade Agreement (NAFTA) members and higher tariffs for nonmembers. Even starting with low tariff protection, simulation results show that tariff reform will have a positive effect on welfare for all expenditure deciles. Under an assumption of nonhomothetic individual preferences, trade liberalization benefits people in the poorer deciles more than those in the richer ones.

Weightless Machines and Costless Knowledge: An Empirical Analysis of Trade and Technology Diffusion

The authors examine the impact on productivity of technologies imported by a sample of developing, and transition economies in Central and Easter Europe, and the Southern Mediterranean - economies becoming increasingly integrated with the European Union. They depart from earlier studies of technology diffusion by focusing on the technology embodied in the machines imported. Earlier work focused mostly on spillovers from foreign research, and development conveyed through trade, without controlling for the characteristics of the goods imported. The authors jointly estimate the choice of foreign technology, and its impact on domestic productivity for a set of manufacturing sectors. They proxy the technological level of the machines imported, by using an index relating the unit value of the machines imported by a given country, to the unit value of similar machines imported by the United States. At any point in time between 1989 and 1997, there is a persistent (even increasing) gap between the unit values of the machines imported by the United States, and those imported by the sample of developing countries. Although developing economies buy increasingly productive machines, the technology embodied in the machines persistently lags behind that in the machines purchased by the United States - so far as unit values are good proxies of embodied technologies. The authors also find that productivity growth in manufacturing, depends on the types of machines imported in a given industry. So although the optimal choice for developing countries is to buy cheaper, less sophisticated machines, given local skills and factor prices, this choice has a cost in long-run productivity growth. If productivity is low, countries buy low-technology machines, but doing so keeps them in a low-technology, low-growth trap.

When Vintage Technology Makes Sense: Matching Imports to Skills

Trade policies in many developing countries discriminate--through import bans, licensing requirements, or higher tariff rates. Even Australia adds a

A Firm's-Eye View of Policy and Fiscal Reforms in Cameroon

12,000 tariff on used cars. Such discrimination is often motivated by the desire to protect domestic industries from competition from low-priced goods, to avoid becoming a dumping ground for castoffs from high-income countries,or to push domestic industries toward the technological frontier. But trade restrictions on used capital goods may be inappropriate in countries where low wages and high interest rates call for labor-intensive production processes. Older equipment is likely to be more labor-intensive than new equipment because technological changes tend to be labor-saving and older equipment requires greater maintenance and presents greater risk of machine downtime. In this empirical analysis of international trade in production machinery, the authors examine choices between new and used equipment, when there is labor-saving technical progress and the skills and technology available in a firm complement each other. They examine US exports of metalworking machine tools by country of destination, classifying machines by vintage technological characteristics. They do so by developing a new method for classifying trade data on machines according to the minimum technological skills necessary to operate them. They are consequently able to use trade data to measure technology transfer. The main findings: 1) The lower a countrys level of development--as measured by such indicators as per capita income, wages, and average education--the greater the share of used equipment imported by the country. 2) Imports of used machinery are greater, the faster the technical change and the greater the skills required to run the machinery efficiently. They conclude that technological factors and skill constraints may be far more important than wage and interest-rate differentials in determining a firms choice of technique in developing countries. Consequently the technological gap between advanced and developing economies rises when machines embody faster technological progress. The authors argue against constraints on imports of used equipment, not for the reason often given in existing literature--inappropriate capital-labor ratios in low-wage countries--but because investing in advanced technologies makes sense only if the countries importing them have the skill to use them.

Chronic Poverty, Poverty Dynamics, and Vulnerability: Mexico 2006-2010

After decades of heavy trade restrictions, fiscal distortions, and currency overvaluation, Cameroon implemented important commercial and fiscal policy reforms. Almost simultaneously, a major CFA devaluation cut the international price of Cameroons currency in half. The authors examine the effects of these reforms on the incentive structure that manufacturing firms face. Did they create a coherent set of new signals? Was the net effect to stimulate the production of tradable goods? Was the dispersion of tax burdens lessened? They address each of these questions using a cost function decomposition applied to detailed firm-level panel data. They observe that Cameroons reforms appear to have sent clear new signals to manufacturers, as the effective rate of protection fell by between 80 and 120 percentage points. Unlike trade liberalization, neither tax reforms nor the CFA devaluation had a major systemic effect on profit margins. But the CFA devaluation did twist relative prices dramatically in favor of exportable goods, so export-oriented firms exhibited rapid output growth.

Local Multipliers and the Informal Sector in Mexico 2000-2010

Through the application of poverty transition analysis for years 2006-2010, the paper found that between 27% and el 32% of the Mexican population could be considered as chronically poor (Tpp), and that between 42% and 47% could be considered as sustainable not poor(Tnn). In turn, between 12% and 15% could be considered entering poverty in a downward mobility phase (Tnp), and between 10% and 12% could be considered leaving poverty in an upward mobility phase (Tpn). Populations in Tpp and Tnp status are mostly characterized by their lacking of access to health, to social security, and food on a regular basis. All of these seem to imply that it is vulnerability to idiosyncratic or systemic crisis what keep them in a low well-being situation.

Determinants of Regional Growth by Manufacturing Sector in Mexico, 1998-2008

This paper analyzes local multipliers and the relation between tradable job creation and informality in Mexico. Building upon local multipliers analysis, and taking into consideration agglomeration economies as well as general equilibrium effects, if finds that a new job in the tradable sector traduces into three new jobs in the nontradable sector. Half of these jobs occur in the informal sector, which is not a desirable outcome considering the low tax collection and vulnerability to labor market shocks associated to informality. Considering the skill composition of the tradable sector, individuals with some college or more have a much higher multiplier over nontradable jobs compared to other skill levels. There are asymmetric effects in terms of the multiplier as negative shocks (job losses) have higher effects.

External returns to higher education in Mexico 2000-2010

This article presents an empirical analysis aimed at identifying the determinants of regional growth in Mexico by manufacturing sector in the period 1988-2008. In the framework of agglomeration economies it argues that the main factor behind Mexico’s long-term regional industrial growth is Jacobs externalities (urbanization economies), and that wages are the main short-term factor behind this growth. There is heterogeneity in the determinants of regional growth according to technological intensity. Low-technology sectors appear to be more sensitive to initial wages and exhibit Jacobs externalities, while higher technology sectors show Porter economies (competition/specialization). Controlling for market conditions, agglomeration economies, and initial conditions, the south, the center and the Gulf of Mexico have a relative disadvantage for growth in medium-high-technology sectors. Moreover, only one out of the 58 Metropolitan Areas (MAs) studied shows a relative advantage for growth in this kind of industry. Relative advantage for low-technology sectors appears to be related to transportation and service infrastructure, while for high-technology sectors the main determinant is human capital.

Endogenous Tariff Formation: The Case of Mercosur

This paper estimates the external returns to higher education in Mexico using cross-sectional micro data from the 2000 and 2010 censuses’ samples. Because of identification problems, which according to the literature are the main challenge in this kind of model, an instrumental variable approach is used, taking the demographic structure as an instrument for the share of college graduates in a Metropolitan Area (MA). Results indicate that a one percentage point increase in the share of college graduates in Mexico increases the regression-adjusted average wages of an MA in more than six percent over a 10-year period. The constant composition approach is used to assess whether these effects are mainly due to externalities or to supply movements along a downward sloping demand. Part of the external returns to a higher share of college graduates is the result of externalities from direct or indirect interaction with these individuals. There appears to be heterogeneity in the magnitude of the spillovers according to educational level.