Regional adjustment to trade liberalization

In this paper, I examine the effect of trade reform on regional employment in Mexico. Three factors condition regional labor demand. (1) transport costs, which encourage firms to locate in regions with good access to foreign markets; (2) backward-forward linkages, which encourage firms to locate near buyers and suppliers, and (3) agglomeration economies, which reinforce the pre-trade pattern of industry location. The results suggest transport costs and backward-forward linkages influence regional employment. Post-trade employment growth is relatively high in regional industries that are close to the United States and near upstream and downstream industries. Trade reform appears to have contributed to the breakup of the Mexico City manufacturing belt and the formation of new industry centers in northern Mexico. (C) 1998 Elsevier Science B.V. All rights reserved.