question by exploiting variations in export growth across Mexican municipalities between 2004 and 2014 to identify the impacts on poverty and i nequality at the municipal level. Understanding the impacts of trade at the local level is crucial in a context such as Mexico because, as shown in this study, about 75 percent of total inequality is explained by inequality within the municipality, rather than between municipalities. Identifying the impacts of exports on poverty and inequality is challenging because there are a variety of factors (several of which are unobservable to researchers) that affect international trade and the income distribution and can thus generate spurious correlations between both sets of outcomes. Even though municipalities with higher levels of exports are richer and more unequal, for example (see figure 3.1), this does not necessarily imply that the former explains the latter. To overcome this challenge, this case study pursues an empirical strategy that isolates changes in exports at the local level from other changes that may introduce a bias in the estimates. The results show that Mexico’s increase in exports to richer countries did not necessarily lead to better welfare indicators at the local level. Although exports, as expected, have a large and positive impact on total labor incomes, their impacts on poverty reduction and household incomes per capita are negligible. Several factors mitigate their potential effect on poverty rates and average incomes.
FIGURE 3.1 Municipalities with Higher Exports Have Less Poverty, Have Higher Incomes, and Are More Unequal Poverty, per capita incomes, and inequality in municipalities with relatively high and low levels of exports, 2015 a. Poverty 45
b. Average per capita income 2,500
40.6
40
2,000
20 15 10
45
30
1,500 1,000
25 20 15 10
500
5
5 0
38.9 38.0
35
1,738 Percent
25
Income (US$)
Percent
30
2,361
40
35 28.7
c. Gini index
0
0 High exports
Low exports
Source: Original calculations for this publication are based on household surveys (poverty, average per capita income, and Gini), population census (workers), and customs data (exports). Note: The sample is restricted to the urban and semiurban municipalities with complete data. A municipality has relatively high (low) exports if its exports-to-workers ratio for 2000 is above (below) the median at the municipality level. Poverty is measured as the FosterGreer-Thorbecke (0) index with the official food poverty line. Monetary values are in real terms at 2014 prices and were deflated using the average National Consumer Price Index (base December 2010). Poverty, average per capita income, and the Gini index are computed as simple averages across municipalities.
Lessons from Recent Cases of Trade Reforms in Developing Countries 55
