Dollarization and the Mexican labor market

This paper examines how dollarization affects wages and employment in the M exican labor market. Dollarization is modeled as a fixed real exchange rate and also as a potentially increased inflow of capital from abroad. The eff ects of dollarization depend upon whether adopting a fixed exchange rate re duces the rate of return on emigration and helps to attract foreign capital . The paper investigates how Mexican emigration to the United States respon ds to changes in bilateral economic conditions. The evidence indicates that the flow of illegal immigrants from Mexico into the United States is sensi tive to economic conditions and is more volatile when the Mexican monetary authorities have fixed the exchange rate in the past. In contrast, the lega l immigrant flow is not sensitive to changes in relative economic condition s.