Who Benefited More from NAFTA: Small or Large Farmers? Evidence from Mexico
Review of Development Economics
Trade liberalization can generate substantial distributional conflicts. Despite its importance, the effects on income from household production has received little attention. This paper measures the impact of increasing in trade openness between Mexico and the U.S. due to NAFTA on the income of small relative to large farmers in Mexico, through the production channel. Relating NAFTA cuts in trade restrictions to border prices of Mexican exports and imports, I fi?nd that NAFTA-induced tariff reductions decreased the border price of corn, Mexico's main agricultural import, and increased the border prices of tomatoes and melons, Mexico's main agricultural exports. Then, I fi?nd that the rise in fruit and vegetable prices benefi?ted small farmers more than large farmers, while the drop in corn prices hurt large farmers more. This study accounts for both benefi?ts to Mexican farmers resulting from higher prices of export goods, as well as losses incurred from greater import competition. Finally, the analysis at the regional level shows stronger results in the central region where trade liberalization increased the level of earning of poor farmers relative to those of large farmers. These results are consistent with observed cropping patterns and regional characteristics.