about 70 to 80 percent since 2004—go to one high-income economy, the United States. Yet, Mexico has underperformed in terms of growth, inclusion, and poverty reduction relative to its peers (World Bank 2019), and there has been only limited income and poverty convergence across municipalities (López-Calva, Ortiz-Juárez, and Rodríguez-Castelán 2019).<sup>1</sup> That increasing exports did not translate into lower poverty and higher income growth is not yet fully understood. Lederman, Maloney, and Servén (2005) argue that NAFTA had positive impacts on foreign direct investment (FDI), trade, and productivity in Mexico, but only modest impacts on wages and the convergence of income per capita. Rodríguez-Castelán, LópezCalva and Barriga (2020) find that local exposure to trade is associated with higher productivity in the manufacturing sector which in turn declines with higher industry concentration. Accordingly, suggestive research points out that negative aggregate shocks in Mexico tend to have important negative effects in regional growth, but that positive shocks, such as a rise in export growth, are not typically reflected in large positive effects on growth nor, to a certain extent, on household welfare. In most states in Mexico between 2005 and 2014, as Campos-Vázquez and Monroy-Gómez-Franco (2016) observe, negative shocks increased poverty more than positive shocks reduced it. The dynamics behind this observation is, up to a point, what this paper aims to test, that is, to identify how and whether a positive trade shock—growth in exports—benefits (or not) the population at the local level.

The scarce research on the impact of export growth on wages and employment in Mexico tends to concentrate on studies on plants or firms (Frías, Kaplan, and Verhoogen 2012; Verhoogen 2008), industry (Waldkirch, Nunnenkamp, and Bremont 2009), or regions (Airola 2008; Chiquiar 2008; Feenstra and Hanson 1997). Within this research, there is some evidence of an equalizing effect of trade on wages that is consistent with the Heckscher–Ohlin model. Chiquiar (2008) finds that regions exposed to NAFTA show an increase in wage levels, but a decrease in the skill premium, and Airola (2008) finds that the wage skill premium is negatively related to maquiladora employment (used as a proxy for FDI). There is also evidence of a small but positive impact of FDI on manufacturing employment (Waldkirch, Nunnenkamp, and Bremont 2009). Meanwhile, there is evidence pointing to a connection

> 1 Between 2004 and 2014, poverty declined in Mexico by 4.0 percentage points, from 37.6 to 33.6 percent, while, in Latin America and the Caribbean, it declined by nearly 17.0 percentage points, from 41.3 to 24.4 percent (US$5.50-a-day per capita poverty line in 2011 purchasing power parity). Moreover, almost half the decline in poverty in Mexico is explained by redistribution (because of the shift from general subsidies to targeted and conditional transfers) rather than to economic growth, despite the expansion in trade over the period. In Latin America, in contrast, redistribution only explains about 20.0 percent of the decline, while economic growth accounted for nearly 80.0 percent of the reduction in poverty.

3