International trade theory university of california, san diego. Combining the free entry condition with the bargaining rule 6 yields the. Whereas stolper and samuelsons paper laid the cornerstone of modern trade theory, and contains many of the core results we use today, the real showstopper in samuelsons trade contributions has to be his famous factor price equalization theorem 6. The stolpersamuelson theorem rachel mcculloch april 2005 this essay is a contribution to michael szenberg, ed. The stolpersamuelson theorem faces congress request pdf. It describes the relationship between relative prices of output and relative factor rewardsspecifically, real wages and real returns to capital. Earlier analyses of the effect of free trade on real wages had.
Our framework is closely related to this seminal 1. The stopletsamuelsons theory of the hekscherohlin model cram. The stolpersamuelson theorem when the labor market. Before samuelson, economists recognized, of course, that factor mobility would help. On the other hand, rybczynski establishes the proposition that an increase in the labour force with constant aggregate endowment of the other. Given the factor intensity assumption, an increase in relative price of c leads to increase in relative price of t, and viceversa. Globalization, regional wage differentials and the stolper. However, we then present some recent work, based on the calibration of a fullyear equilibrium model, with all the stolpersamuelson analysis equations fully and appropriately adapted to the actual data.
The stolpersamuelson theorem shows that the free trade will provoke a decrease in the wages of the factor less intensively used for the production. Stolpersamuelson and rybczynski princeton university. What happens to equilibrium relative factor prices and the production structure sectorial composition if the distribution of productive factors changes can interpret as immigration. An increase in the price of the capitalintensive good increases the return to capital and decreases the return to the other factor labor. Stolper samuelson theoremi theorem stolper samuelson theorem. One unit of cost for the producer is given by wl rk 1. I factor price insensitivity and rybczynski theorem. The year 1991 marked the 50th anniversary of the publication of the article by wolfgang stolper and paul samuelson that provided the first statement and proof of the stolper samuelson theorem. Meeting 4 stolper samuelson theorem international economics. Likewise, an increase in the price of the laborintensive good increases wage and reduces rent. Moreover, the stolpersamuelson analysis leads to a worrying conclusion that western governments are practically able to counteract this effect.
In his famous 1955 article, rybczynski used the familiar production box diagram in order to prove, correctly, the theorem that bears his name. For example, the specificfactors version tells us that the changes in the factor. Paul anthony samuelson may 15, 1915 december, 2009 was an american economist. Read the full brief on the stolpersamuelson theorem, or click here to download a pdf containing all six of the articles.
The general version of the stolpersamuelson ss theorem states that free trade benefits the factor used relatively. Lecture on stolpersamuelson theoreminternational trade. The stolpersamuelson theorem relates directly to the underlying theorem of heckscher 1919 and ohlin 1933 stating that a country would import the product using its relatively scarce factor intensively, a tariff reducing imports and making the scarce factor more expensive. Background the stolper samuelson theorem, relating factor price changes to trade liberalisation, has been cited to support the idea that increasing trade with developing countries has been a major. The lecture was conducted by parameswaran narayanan,an aspirant of economics.
On the other hand, rybczynski establishes the proposition that an increase in the labour force with constant. If the results of the analysis indicate findings inline with the definition of stolper r samuelson theorem, lagrange multipliers can be accepted as a suitable instrument for. The stolpersamuelson theorem is the basis for the analysis of. The stoplersamuelson theorem predicts that free trade between the united states, a capital abundant country, and mexico, a labor abundant country would. Since a tariff will raise the domestic price of a countrys import competing good, if we know what happens in the model when a price changes, then. Total return to labor capital wage interest quantity of labor capital c. Peter neary university college dublin and cepr february 6, 2004 correspondence to. Paul samuelsons contributions to international economics. In 1986 stolper was a cofounder of the international joseph a. Institute for the study of social change, university college dub. The relevance of the stolpersamuelson theorem to the. The stolpersamuelson theorem is presented at the end as the main and definitive conclusion. In 1938 stolper completed his economics studies at harvard university.
The stopletsamuelsons theory of the hekscherohlin model. The stolper samuelson theorem the stolper samuelson theorem is one of the central results of heckscherohlin theory q. In 1925 the family moved to berlin and emigrated in 1933 to the united states. As mexicos correlation coefficient between openness and the gini index is0. However, the construction he used also suggests that the dual theorem, the stolper samuelson theorem, is incorrect. The stolpersamuelson theorem moving from no trade to free trade raises the returns to the factor used intensively in the risingprice industry, and lowers the. The stolpersamuelson theorem, the rybczynski effect, and the. Stolper rsamuelson theorem is a fundamental microeconomic basis for analysis the impact of international trade on income from labour wage and capital.
Wolfgang friedrich stolper may 1912 31 march 2002 was an american economist stolper was born in vienna, the eldest son of economists gustav stolper and toni stolper. The stolpersamuelson theorem social sci libretexts. The stolper samuelson theorem is presented at the end as the main and definitive conclusion. In celebration of the fiftieth anniversary of the stolpersamuelson theorem, this volume collects in one place the original stolpersamuelson articles as well as the most significant later contributions that interpret, extend, and test. The stolpersamuelson theorem when the labor market structure matters a. Stolpersamuelson theoremi theorem stolpersamuelson theorem. The total amounts of the factors of the production are fixed b.
Theorem, factor price equalization theorem and rybczynski theorem it represents the core of heckscher rohlin trade theory. The stolpersamuelson theorem prepared for encyclopedia of world trade since 1450, ed. The stolpersamuelson theorem when the labor market structure matters. It is useful in analyzing the effects on factor income, either when countries move from autarky to free trade or when tariffs. The relative price for knowledge workers in the two sectors of the domestic. The stolpersamuelson theorem is a basic theorem in heckscherohlin trade theory.
Stolpersamuelson theorem the ss theorem shows the distributional effects of trade who wins, who loses. The stolpersamuelson theorem sst simply suggests that, in any particular country, a rise in the relative producer prices of the labour intensive good will make labour better off and capital worseoff, and viceversa, provided that some amount of each good is being produced. Apr 28, 2014 this is a short lecture about stolper samuelsno theorem of international economics. The stoplersamuelson theorem indicates that given certain assumptions and conditions. It is useful in analyzing the effects on factor income, either when countries move from autarky to free trade or when tariffs or other government regulations.
The stolper samuelson theorem prepared for encyclopedia of world trade since 1450, ed. This thesis is brought to you for free and open access by the theses. Tr ade leads to an increase in the return to a countrys abundant factor ie capital and skilled labor in the usa and a fall in the return to its scarce factor ie unskilled labor in the usa. The stolpersamuelson theorem the stolpersamuelson theorem is one of the central results of heckscherohlin theory q. The stolpersamuelson theorem when the labor market structure. The economist explains economics the relationship between.
From 1949, stolper was professor of economics at the university of michigan, ann arbor. Reuse this content the trust project more from the economist explains. Rybczynskis diagram and the stolpersamuelson theorem. Let f l waf l pf, the share of labour in food sector f t raf t pf, the share of capital in food sector c l wac l pc, the share of labour in cloth. The real return to the factor used intensively in the export industry will rise in the longrun. Pdf this chapter examines the stolpersamuelsons theorem under varying. The stolpersamuelson theorem, relating factor price changes to trade. The stolpersamuelson theorem asserts that an ad valorem import tariff in a twocommodity, twofactor country will bring about a more than proportionate rise in the price of the corresponding intensive factor in that industry. Factor price equalization and stolpersamuelson theorem. The theorem developed by these two writers, called as stoplersamuelson theorem, rests upon the following main assumptions. However, the construction he used also suggests that the dual theorem, the stolpersamuelson theorem, is incorrect.
The relevance of the stolpersamuelson theorem to the trade and. The stolpersamuelson theorem demonstrates how changes in output prices affect the prices of the factors when positive production and zero economic profit are maintained in each industry. Trade liberalization, stolpersamuelson theorem, wage differentials. For any given output price vector and technology, the factor prices will be the same across countries. Since a tariff will raise the domestic price of a countrys import competing good, if we know what happens in the model when a price changes, then we can deduce the effect of a tariff. Eco364 international trade chapter 3 heckscher ohlin.
Oct 04, 2017 meeting 4 stolper samuelson theorem international economics 1. The stolper samuelson theorem was originally derived to analyze the effects of a tariff on factor prices in the context of the ho model. In fact, all economists learn about this theoretical reality, known as the stolpersamuelson theorem, in their very first course in international trade, and rehash it in every other course about trade that they ever take or teach during the course of their career. Ho approachthe theorem of stolper and samuelson 1941as the core analytical framework of international economists for modeling the distributional effects of trade.
Meeting 4 stolper samuelson theorem international economics 1. The stolper samuelson theorem sst simply suggests that, in any particular country, a rise in the relative producer prices of the labour intensive good will make labour better off and capital worseoff, and viceversa, provided that some amount of each good is being produced. The first american to win the nobel memorial prize in economic sciences, the swedish royal academies stated, when awarding the prize in 1970, that he has done more than any other contemporary economist to raise the level of scientific analysis in economic theory. The stopler samuelson theorem international trade economics. The stolpersamuelson theorem was originally derived to analyze the effects of a tariff on factor prices in the context of the ho model. Oct 29, 2010 the stolper samuelson theorem relates directly to the underlying theorem of heckscher 1919 and ohlin 1933 stating that a country would import the product using its relatively scarce factor intensively, a tariff reducing imports and making the scarce factor more expensive. The stolper samuelson approach states that an increase in. United states, in internationsal trade, or in free trade, the tariff, and reciprocity. It is useful in analyzing the effects on factor income either when countries move from autarky to free trade or when tariffs or other government regulations.
In honor of this golden jubilee, international trade economists at the university of. Stolper samuelson theorem, there are papers that have found support for it using data on political action committee pac contributions and congressional voting patterns. Stopletsamuelson theorem essay examples 1047 words cram. A golden jubilee deardorff, alan verne, stern, robert mitchell on. The stolpersamuelson theorem is a key result of the classical trade literature.
The relevance of the stolpersamuelson theorem to the trade. Pure competition, homogeneity of factors of production, and perfect mobility of. The stolpersamuelson theorem university of michigan press. Assume two industries export and import and two factors of production labor and capital assume perfect interindustry mobility of factors of production factors can move costlessly between the two industries. The heckscher ohlin samuelson theorem ppt presentation summary.