A Partial Test of the Heckscher-Ohlin-Samuelson Model: US-Mexico Trade Relations and Labour in Mexico

Abstract

Proponents of trade liberalization emphasize the role of trade and economic integration between less developed and more developed economies as an engine for development and improved standards of living. Nowhere is this argument more salient, and more controversial, than in the discussion of US-Mexico trade, and the North American Free Trade Agreement (NAFTA) specifically. As the Heckscher-Ohlin- Samuelson (HOS) model informs much of the rhetoric and policy surrounding the USMexico trade relationship, we attempt a partial test of the model and its assumptions regarding labour and employment in the case of the Mexican economy. Specifically, we focus on the Heckscher-Ohlin (HO) theorem and the Factor Price Equalization (FPE) theorem. We conclude that although economic analysts recognize that the model does not account the complexity of Mexico's domestic economy and international trade relationships, it continues to permeate rhetoric, remaining the dominant paradigm for proponents of NAFTA on both sides of the border.