The Dynamics of Income Inequality in Mexico since NAFTA

The Dynamics of Income Inequality in Mexico since NAFTA That Mexico is a highly unequal country is a fact that has been recognized at least since Alexander von Humboldt wrote at the beginning of the nineteenth century that the region then known as New Spain was "the country of inequality."Sadly, this is still true in the twenty-first century.For example, Corbacho and Schwartz (2002) point out that "Mexico's income inequality is significantly more pronounced than the Latin American average, which is the region with the highest degree of inequality in the world."Also, looking at the long-run trend in income inequality in Mexico leaves little room to be optimistic.Historical data show that while Mexico achieved an important reduction in inequality during the 1960s and 1970s, periods of very rapid economic growth, the country has experienced very little progress in income distribution since the 1980s (Székely 2005).This situation, however, may have started to change in recent years.This paper provides evidence on the reduction in income inequality that has taken place in Mexico since 1994 and discusses some of the likely sources of this trend (see figure 1), which is important for at least two reasons: first, because it has almost completely reversed the widely documented increase in inequality that occurred in the 1984-94 period (Bouillón, Legovini, and Lustig 2003;Legovini, Bouillón, and Lustig 2005), and second, because the reduction seems to be the result of two important structural changes in the Mexican economy:1 5 5