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Abstract
Much of the debate over potential wage changes under a North American Free Trade
Agreement (NAFTA) reflects views about the links between output prices and factor prices as described in
the Stolper-Samuelson theorem. But the Stolper-Samuelson theorem does not fully describe the likely
labour market effects of NAFTA because it includes the assumption that factors do not migrate. There are
two forces at work that will affect US-Mexican wages under NAFTA; (a) indirect links between prices and
wages as described in the Stolper-Samuelson theorem, and (b) direct effects of migration on labour
supplies in the two countries. We use an 11-sector computable general equilibrium model of Mexico and
the USA with both price changes and migration to determine which wage effect dominates following trade
liberalization. We find that migration effects generally dominate Stolper-Samuelson effects on wages.
Empirically, Stolper-Samuelson effects are very small.