Does the Stopler-Samuelson Theorem Explain the Movement in Wages? The Linkage Between Trade and Wages in Latin American Countries

Naoko Shinkai

No 4237, Research Department Publications from Inter-American Development Bank, Research Department

Abstract: How does trade liberalization affect the wage gap between skilled workers and unskilled workers? The Heckscher-Ohlin (HO) trade model gives a prediction about the relation between wages and prices. However, its simple Stolper-Samuelson (SS) and Specific-Factors (SF) versions make opposite predictions about the correlation between prices and wages of certain types of workers (specific factors in industries) when they are not used intensively. The analysis in this paper provides evidence that may allow one to distinguish empirically between these two versions of the HO model, using wage data from household surveys in several Latin American countries Bolivia, Mexico, and Venezuela. Two different specifications for the specific factor are examined: educated workers and experienced workers. In summary, the results favor SS, when educated workers are defined as the specific factor for these Latin American countries from the late 1980s to the mid-1990s.

Date: 2000-11
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