"Study examines trends in income distribution in Mexico during the period of trade and economic liberalization. Makes the obvious but often ignored point that the prediction of orthodox theory can turn out to be false if its assumptions are not fulfilled and if offsetting forces are at work. The study's detailed analysis of the effective protection rates in 1989 shows how inadequate reforms have been as far as the promotion of efficient resource allocation"--Handbook of Latin American Studies, v. 57.

The author argues that liberalization strategy in Mexico has been successful in the short-term, but in looking at issues of employment, income distribution, foreign trade and industrial specialization, it has created a polarization of economy and society resulting in unsustainable conditions.

Over the past two decades, the percentage of the world’s population living on less than a dollar a day has been cut in half. How much of that improvement is because of—or in spite of—globalization? While anti-globalization activists mount loud critiques and the media report breathlessly on globalization’s perils and promises, economists have largely remained silent, in part because of an entrenched institutional divide between those who study poverty and those who study trade and finance. Globalization and Poverty bridges that gap, bringing together experts on both international trade and poverty to provide a detailed view of the effects of globalization on the poor in developing nations, answering such questions as: Do lower import tariffs improve the lives of the poor? Has increased financial integration led to more or less poverty? How have the poor fared during various currency crises? Does food aid hurt or help the poor? Poverty, the contributors show here, has been used as a popular and convenient catchphrase by parties on both sides of the globalization debate to further their respective arguments. Globalization and Poverty provides the more nuanced understanding necessary to move that debate beyond the slogans.

This study performs an ex-post analysis of the effects of the trade liberalization in Mexico between 1989 and 2000, taking into account regional differences in the Mexican economy. The effects of trade liberalization are first translated into changes in regional prices and wages. Those estimates are plugged into a farm-household model to estimate the effect on households' welfare.The findings suggest that trade liberalization has affected domestic prices and labor income differently both across income groups and geographically across the country, hence producing diverse outcomes on different households. Regarding prices, the results indicate that trade liberalization has lowered relative prices of most non-animal agricultural products and, while reducing the cost of consumption, has reduced households' agricultural income, widening the income gap between urban and rural areas. The findings also show that trade liberalization has had diverse effects on wage rates. Skilled workers, for which trade liberalization has produced an increase in wages, have benefited relative to unskilled workers. Wages of unskilled workers have in many regions decreased as a result of trade liberalization. Similar differences are found in the geographic distribution of the benefits of trade liberalization, with the states closest to the U.S. border gaining threefold more relative to the least developed states in the south. Therefore trade liberalization, although beneficial, has contributed to an increase in inequality between the south and the north of the country, urban and rural areas, and skilled and unskilled labor.From a poverty perspective, the trade liberalization that occurred between 1989 and 2000 has had the direct effect of reducing poverty by about 3 percent, therefore lifting approximately 3 million individuals out of poverty.This paper - a product of Trade, Development Research Group - is part of a larger effort in the group to study the linkages between trade and poverty.