Stolper-Samuelson Theorem Essay ⋆ Political Science Essay Examples ⋆ EssayEmpire

As presented in the original 1941 article by Walter Stolper and Paul Samuelson, the theorem postulates that the imposition of an import tariff by a small nation leads to an increase in the real income of the scarce production factor of that nation and to a reduction in the real income of the abundant factor. Factor abundance depends thereby on the relative endowments of the production factors (e.g., capital to labor ratio) in one country compared to the other. However, in the literature the theorem is usually understood as referring more generally to the linkages between international trade, goods prices, and factor prices. It is one of the cornerstones of the HeckscherOhlin model as presented by Bertil Ohlin in 1933, which is the central model in neoclassical theory of international trade.

The theorem essentially explains the linkages between changes in the relative prices of goods caused by trade policy interventions, on the one hand, and changes in the absolute income levels of the different production factors, on the other. These linkages between prices and remunerations depend on the factor intensities of the goods. The theorem is based on the assumptions of the Heckscher-Ohlin model, including homogeneous goods and production factors, general equilibrium, interindustry factor mobility, international factor immobility, and full employment (before and after a trade policy intervention). In the case of an imposition of an import tariff, it has been demonstrated that the increase of the income of the scarce factor exceeds the price changes of both goods and that, therefore, the postulated income effect is independent from the consumption pattern of the owners of the factor. In other words, changes in the relative prices of goods cause even greater effects on the income distribution of the trading nation.

The Rybczynski theorem, as published by Tadeusz Rybczynski in 1955, is the counterpart of the Stolper-Samuelson theorem, linking factor quantities to goods quantities. The Rybczynski theorem postulates that an increase in the endowment of one production factor in a nation leads to an absolute increase in the production of the good intensive in that factor and to an absolute reduction in the production of the other good.

From a political economy point of view, the relevance of the Stolper-Samuelson theorem lies in the fact that it helps to identify winners and losers of trade liberalization or protectionist policies. For example, if we consider a developing country with a relative abundance of land and unskilled labor (and a relative scarcity of capital and skilled labor) with an initial set of protectionist policies in place, the theorem predicts that trade liberalizing policies will be supported by the land owners and trade unions because of the expected effects on their respective real incomes. The opposite would apply in the case of a “developed” country characterized by a relative abundance of skilled labor and capital. The theorem contributes thus also to an understanding of the relationships between trade openness, or economic globalization, and the international and within-country distribution of incomes.

Although the prescriptions of the theorem may seem plausible, altering underlying assumptions might lead to different conclusions. If, for example, there is imperfect within-country factor mobility like in the specific factors model, as posited in the work of Ronald Jones in 1971, Wolfgang Mayer in 1974, and J. Peter Neary in 1978, interests may be organized—in support or against certain trade policy measures—by industries or regions, rather than in the traditional way as implied by the theorem.

Bibliography:

Jones, Ronald W. “A Three Factor Model in Theory,Trade, and History.” In Trade, Balance of Payments, and Growth, edited by Jagdish N. Bhagwati, Ronald W. Jones, Robert A. Mundell, and Jaroslav Vanek, 3–21. Amsterdam: North-Holland, 1971.
Mayer,Wolfgang. “Short-run and Long-run Equilibrium for a Small Open Economy.” Journal of Political Economy 82 (1974): 955–968.
Neary, J. Peter “Short-run Capital Specificity and the Pure Theory of International Trade.” Economic Journal 88 (1978): 488–510.
Ohlin, Bertil Interregional and International Trade. Cambridge Mass.: Harvard University Press, 1933.
Rybzcynski,Tadeusz. “Factor Endowments and Relative Commodity Prices.” Economica 22 (1955): 336–341.
Stolper,Walter F., and Paul A. Samuelson. “Protection and Real Wages.” Review of Economic Studies 9 (1941): 58–73.

This example Stolper-Samuelson Theorem Essay is published for educational and informational purposes only. If you need a custom essay or research paper on this topic please use our writing services. EssayEmpire.com offers reliable custom essay writing services that can help you to receive high grades and impress your professors with the quality of each essay or research paper you hand in.