Trade Liberalisation and Migration Hump: NAFTA as a Quasi-Natural Experiment

This paper investigates the effect of trade liberalisation on migration, using the North American Free Trade Agreement (NAFTA) as a ‘quasi-natural experiment’. I employ a data-driven and transparent event analysis methodology – synthetic control method – suitable for policy evaluation at the macro level, to assess the counterfactual scenario. This paper combines data from DEMIG-C2C and MOxLAD for the 1974–2010 period. Using regular migration from Mexico to the US as a ‘treated unit’ and the other sixteen Latin American countries to construct a ‘synthetic Mexico’, I find evidence of ‘migration hump’ following the implementation of NAFTA. The duration of the hump is estimated to be around fifteen years. This lengthy adjustment period was likely prolonged by Mexico’s subsequent financial crisis in the mid-1990s occurring in the early years of NAFTA’s implementation. The findings of this paper suggest that trade and migration are short-run complements and long-run substitutes, with a significant period of adjustment. Instead of supporting the neoclassical theory of trade and migration, our empirical evidence is more in line with the theoretical prediction of migration hump phenomenon proposed by Martin & Taylor (1996).