Tracing the Local Impacts of Exports on Poverty and Inequality in Mexico

Evidence on the effect of exports on welfare at the local level is scarce. Using a unique dataset of international trade and poverty maps for almost 2,000 Mexican municipalities between 2004 and 2014, the studypresented in this paper provides new evidence on the impact of a significant rise in exports on poverty and inequalityat the local level. The analysis implements an instrumental variable approach that combines the initial structure ofexports across municipalities with global trends in exports from developing to developed countries by sector. Theresults show that a 10 percent increase in the ratio of exports to workers reduces income inequality measured by theGini coefficient by 0.17 point (using a 0 to 100 scale), but no significant effects on poverty reduction or averagehousehold incomes are identified. The lack of impacts on average incomes is driven by a rise in the supply of laborat the local level because municipalities with higher export growth experienced an increase in labor force participationand attracted more net migration, particularly of unskilled workers. Therefore, while total labor incomes grew inresponse to an increase in exports, average labor income per worker did not change. Declining remittances also bluntedthe effect of growing exports on household incomes.