Real effective exchange rates have been calculated by relative unit labour costs for many countries in the world economy. In this paper we develop a methodology to estimate vertically integrated unit labour costs by sector, using input-output techniques, for the Mexican and US economies in the period 1970-2000. The results are then compared with the measurement of ‘Revealed’ Comparative Advantage by sector, of the Mexican economy, in order to establish whether Mexican foreign trade by sector was related to its relative labour costs, during this period. To test this relationship, econometric analysis for panel data is utilized. An important corollary of this study is that the Mexican economy is moving from labour-intensive goods production to non-labour intensive goods production; this may be regarded as a structural change in the foreign trade pattern of the Mexican economy.
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