US–Mexican Economic Integration and its Effects on Unemployment in Mexico's Northern Border States

Abstract

The objective of this paper is to estimate the impact of the economic activity of the US–Mexico trans-border region on the unemployment rate of the northern border states of Mexico. A panel data econometric model is established to relate changes in the unemployment rate to changes in the GDP of the Mexican and American border states, as well as changes in Mexican wages and border trade. Panel data models were estimated using fixed and random estimations; the results showed that wages had a positive correlation with respect to the unemployment rate. The GDP of the Mexican border states and the GDP of the US border states exhibited a negative relationship with respect to the unemployment rate. These results corroborate a negative relationship between the unemployment rate and the GDP of the Mexican border states but, most importantly, with the GDP of the US border states, providing evidence that the economic integration at the border region has created a situation where the labor market of the northern border states of Mexico depends on the economic activity of the US border states.