Migration, Trade, and Foreign Direct Investment in Mexico

Part of the rationale for the North American Free Trade Agreementwas that it would increase trade and foreign direct investment(FDI) flows, creating jobs and reducing migration to the UnitedStates. Since poor data on illegal migration to the United Statesmake direct measurement difficult, data on migration withinMexico, where census data permit careful analysis, are usedinstead to evaluate the mechanism behind predictions on migrationto the United States. Specifications are provided for migrationwithin Mexico, incorporating measures of cost of living, amenities,and networks. Contrary to much of the literature, labor marketvariables enter very significantly and as predicted once possiblecredit constraint effects are controlled for. Greater exposureto FDI and trade deters outmigration, with the effects workingpartly through the labor market. Finally, some tentative inferencesare presented about the impact of increased FDI on Mexico–U.S.migration. On average, a doubling of FDI inflows leads to a1.5–2 percent drop in migration.