The Effect Of Trade In Demand For Skill In Emerging Economies

This dissertation explores the effect of trade in demand for skill in an unskilled labor abundant country. I use the case of Mexico to document that exporters are on average more skill-intensive than non exporters, yet conditional on exporting skill intensity is negatively correlated with export sales. I build a model to explain these two observations simultaneously and estimate it for two Mexican manufacturing industries in 2003. A counterfactual analysis illustrates that when trade costs decrease, resources are reallocated to the most skilled-intensive firms within industries but toward the unskilled-intensive tasks within industries. When trade costs are high, the first effect dominates and skill premium increases. When trade costs are sufficiently low, comparative advantage in unskilled intensive activities dominates and skill premium decreases. This pattern matches the observed behavior of skill premium in Mexican manufacturing industry following trade liberalization reforms.