Spatial Equilibrium and the Regional Effects of Trade Liberalization

This paper uses the 1994 North American Free Trade Agreement (NAFTA) and granular data on Mexican municipalities to study the local effects of trade liberalization on college wage premia, housing costs, and urban amenities between 1990 and 2010. I measure local exposure to international trade by constructing a market access database of each municipality’s lowest-cost route to the closest US truck port. I find that municipalities facing larger trade exposure experienced: (1) declines in local wage differences between college and noncollege graduates, both in nominal and real terms; (2) smaller increases in local urban amenities. I interpret these results under the notion of spatial equilibrium in which non-monetary urban amenities compensate for gaps in real wages across cities.