Collateral Effects of Trade Liberalization: The Case of the Chinese Takeover on the Mexican Manufacturing Industry (1998-2008)

This paper analyzes the crime and the manufacturing employment connection in Mexico in the early years of China’s entry into the WTO. This exposition presents an estimate of the relative effects of Mexican manufacturing employment spillovers on two felony offenses between 1998 and 2008: intentional registered homicides and robbery rates of convicted criminals. A composite data set is used to cover the preceding and succeeding times of the Chinese WTO integration for the entire Mexican urban population. In addition to total manufacturing employment variations in its most aggregated version, this paper specifically explores the isolate relative effects of blue and white-collar workforce changes on violent crime variations. This essay uses two methodologies to evaluate ceteris paribus causal effects on robbery and intentional homicide rate: Ordinary Least Squares (OLS), and an instrumental variable (IV) approach. The latter uses the specific periodical change in Chinese competitiveness pressure on the Mexican manufacturing workforce to absorb the endogenous variation in the number of Mexican manufacturing employment. In so doing, this study extensively controls for demographic, economic, geographic and state fixed effects. Contrary to the literature, the findings obtained in the first phases of this analysis through the OLS specification exerted unclear and insignificant effects. Nevertheless, after the inclusion of Chinese trade variations effects, both the magnitude and sign shifted into a strong negative relationship, highlighting total manufacturing employment change on homicide rates as the sole coefficient that yielded meaningful results.