REGIONAL ADJUSTMENT TO TRADE LIBERALIZATION

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