**Table 6: Exports, imports and local labor informality**

|||**OLS**|||**IV**||
|---|---|---|---|---|---|---|
|**(a) Impact of exports on informality rate**|(1)|(2)|(3)|(4)|(5)|(6)|
|log (Exports per worker), change|-0.338|-0.319|-0.391*|-1.444|-1.756|-2.483*|
||(0.236)|(0.234)|(0.232)|(1.327)|(1.403)|(1.447)|
|Observations|1,980|1,980|1,980|1,980|1,980|1,980|
|Demographic and employment controls (year 2000)|NO|YES|YES|NO|YES|YES|
|Median income control(year 2000)|NO|NO|YES|NO|NO|YES|
|**(b) Impact of imports on informality rate**|(1)|(2)|(3)|(4)|(5)|(6)|
|log (Imports per worker), change|-0.426***|-0.433***|-0.420***|<br>-0.453|-0.739*|-0.777*|
||(0.142)|(0.138)|(0.137)|(0.413)|(0.413)|(0.412)|
|Observations|1,980|1,980|1,980|1,980|1,980|1,980|
|Demographic and employment controls (year 2000)|NO|YES|YES|NO|YES|YES|
|Median income control(year 2000)|NO|NO|YES|NO|NO|YES|

_Note:_ Robust standard errors in parentheses. *** p < .01 ** p < .05 * p < .1. The dependent variable is the change from 2000 to 2015 in the informality rate, measured as the percentage of employees without pension or retirement benefits at work. The explanatory variable is the change in the log of exports-to-workers and imports-to-workers from 2004 to 2014. Demographic and employment controls include the proportion of rural population, the proportion of population aged 15 and more who are literate, total population, and the share of employment in the primary, secondary and tertiary sectors of economic activity (all variables in the year 2000).

# 4. Trade and local labor market effects: Extensions

## 4.1 Geography: North versus South

Geographical distance is a major determinant of GVC participation and Mexico’s states and municipalities in the North are more closely integrated in GVCs (World Bank 2020, and section 4.4). Geographical proximity to the United States could thus play a major role in determining the local labor market effects of trade. Rather than relying on distance measured in kilometers which does not account for trade barriers, we rely on a measure of travel time to one of 44 entry ports to the United States following Blankespoor at al. (2017). We then split municipalities into the North and South, based on a state’s geographical distance to the U.S. border (see Appendix 7), where states in the North (South, respectively) are classified as those below (above, respectively) the median geographical distance across all states. Appendices 8 and 9 show the results for the North and South, respectively.

While OLS estimates suggest a positive correlation between rising exports per worker and employment rates and to a lesser extent labor force participation rates in the North, IV estimates find no significant effect. Higher exports per worker in the South, in contrast, significantly increase labor force participation and employment rates. A 10 percent expansion in exports per worker led to an increase in labor force participation and employment rates by 0.25 and 0.22 percentage points, respectively, in the South. The lack of effects through the employment channel in the North is partially explained by the increase in labor supply due to larger net migration compared to the South. In addition, results suggest that higher exports reduce the informality rate only in the South, but not in the North. Specifically, a 10 percent expansion in exports per worker in the South lowered the informality rate by 0.35 percentage points on average.

Higher exports per worker, however, raise total labor incomes in the North, but not in the South. Specifically, a 10 percent rise in exports per worker led to gains in total labor incomes by 4.9 percent. There is no effect of higher exports per worker on average labor incomes, though, which again could be explained by increased labor supply especially in the North. The lack of statistical significance on labor incomes in the South may be due to generally fewer job opportunities and lower labor demand. The 18