New Look on the Specific Factor Model: Empirical Evidence from Manufacturing Industries in Tanzania

This study analyzes the impact of trade on wages in the context of the specific factor model by focusing on the link between trade and the average real wage. A recent paper by Jones & Ruffin (2008) shows how one can use the specific factor model to predict how labor should fare from an improvement in the terms of trade, an increase in the price of exportables relative to importables. For this purpose, I use annual firm-level data on the manufacturing sector in Tanzania during the period 1992 to 1998. I find that a ceteris paribus increase in the price of exportables may benefit labor in the food-beverage industry but hurt labor in the textile-garment, wood-furniture and metal-machinery industries. There are industries where the specific factor model predicts that exporting would help workers, but where the Stolper-Samuelson theorem of the Hecksher-Ohlin model predicts the reverse.