Any free trade agreement (FTA) has a direct effect on the real incomes of factors in an economy. Expectations about changes in real income resulting from a FTA strongly influences the trade-policy postitions of factor lobbies. Two theories, the Stolper-Samuelson theorem and the specific-factors model, predict the effects of a FTA on the real incomes of capital and labor. The Stolper-Samuelson theorem predicts a FTA will increase in real income of capital and decrease the real income of labor. Alternatively, the specific-factors model predicts that labor and capital will win or lose together dependant on which industries the factors are employed.
Magee (1978) conducted an innovative study of the lobby positions of labor and capital in 33 U.S. industries with respect to the 1973 Trade Reform Act. Magee's data on U.S. factor lobby behavior was most consistent with the predictions of the specific-factors model. Factor lobbies tended to split on sectoral lines, with the capital and labor of any given industry expressing the same trade policy position.
Until now, Magee's study is the only one of its kind and has lead
to the widespread acceptance of the specific-factors model ability
to predict the short-run effects of trade policy. In this paper
I used Magee's methodology as a guide to test the Stolper-Samuelson
theorem versus the specific-factors model using data of factor
lobby trade positions on NAFTA. My results contrast sharply with
Magee's. Political positions on NAFTA tend to split along factor
lines, capital versus labor, supporting the Stolper-Samuelson
theorem over the specific factors model. My results show that
not every FTA is the same and application of any theory to a particular
trade policy must consider the specific nature of the policy.