An increase in the relative price of skillintensive goods causes the relative returns to skill to rise, thus potentially increasing wage inequality. The stolpersamuelson theorem is a basic theorem in heckscherohlin trade theory. 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. Peter neary university college dublin and cepr february 6, 2004 correspondence to. For instance, when capital in endogenous, the stolper samuelson theorem incorrectly predicts the longrun impact of a tariff n factor rewards in a 2by2 trade model. The stolpersamuelson theorem when the labor market structure. Some remarks on the stolpersamuelson and rybczynski. The stopler samuelson theorem indicates that given certain assumptions and conditions. Factor price equalization and stolpersamuelson theorem. The stolper samuelson and rybczynski theorems sannarandaccio lecture the stolper samuelson theorem.
In honor of this golden jubilee, international trade economists at the university of. The theorem is one of the few comparative statics propositions in general equilibrium theory and it is the foundation of political economy models of tariffs and other taxes and government interventions. It describes the relationship between relative prices of output and relative factor rewardsspecifically, real wages and real returns to capital the theorem states thatunder specific economic assumptions constant returns to scale, perfect competition, equality of the number of factors to the number of. The paper does not contain empirical analysis or real data. A generalization of the samuelson reciprocity relation, the. Rybczynski theorem winners and losers within a country stolper samuelson theorem factor price equalization theorem trade and income inequality leontief paradox trade and jobs trade and technology. Oct 04, 2017 meeting 4 stolper samuelson theorem international economics 1. The stolper samuelson theorem is one of the central results of heckscherohlin theory q. The stolpersamuelson and rybczynski theorems sannarandaccio.
Clear evidence of his incredible breadth are in the section titles. Given the factor intensity assumption, an increase in relative price of c leads to increase in relative price of t, and viceversa. Stolpersamuelson theorem, theorems of international trade. The stolpersamuelson theorem university of michigan press. In the specificfactor model assume that the computer industry only use capital and that the shoe industry only use labor.
In his famous 1955 article, rybczynski used the familiar production box diagram in order to prove, correctly, the theorem that bears his name. Paul samuelsons famous 1948 factor price equalization theorem was his main contribution to international trade theory. 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. Stolpersamuelson theorem is one of the most important theorems in international trade theory and provides analytical extension of heckscherohlin trade theory. In celebration of the fiftieth anniversary of the stolper samuelson theorem, this volume collects in one place the original stolper samuelson articles as well as the most significant later contributions that interpret, extend, and test the basic result. The stolper samuelson theorem rachel mcculloch april 2005 this essay is a contribution to michael szenberg, ed. A generalisation of the stolper samuelson theorem with. The general version of the stolper samuelson ss theorem states that free trade benefits the factor used relatively.
To determine the effects of changes in output prices on factor prices we differentiate the above two cautions with respect to prices. Fpe theorem presupposes that all markets are perfectly competitive. The theorem developed by these two writers, called as stopler samuelson theorem, rests upon the following main assumptions. 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. Consider an ho economy in which there are two countries united states and france, two goods wine and cheese, and two factors.
Ho approachthe theorem of stolper and samuelson 1941as the core analytical framework of international economists for modeling the distributional effects of trade. When a capitalabundant country moves to free trade, pc will rise relative to pb. It describes the relationship between relative prices of output and relative factor rewardsspecifically, real wages and real returns to capital. Stolper samuelson theoremv that is, pc pf f l c lr w 18 that is, r w 1 pc pf 19 where f l c l theorem given the factor intensity assumption, an increase in relative price of good c leads to more than proportionate increase in relative price of t, and viceversa. View notes stolper samuelson theorem from econ 355 at iowa state university. Using a previous reformulation of the theorem, it demonstrates that when the relative prices for. Competitive markets if a country suddenly opens up to trade, how will factor prices change. The importance of the theorem derives from its key. Stolper samuelson theorem the ss theorem shows the distributional effects of trade who wins, who loses. International trade theory university of california, san diego. Stolper samuelson theorem thibault fally c181 international trade spring 2018. Prepared for encyclopedia of world trade since 1450, ed. This chapter examines the stolper samuelson s theorem under varying conditions and assumptions. 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.
It provides a definite answer to a central question in applied economics. Why has it been so difficult to test stolper samuelson. 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. Stolpersamuelson theorem the ss theorem shows the distributional effects of trade who wins, who loses. Institute for the study of social change, university college dub. Meeting 4 stolper samuelson theorem international economics. The stolper samuelson theorem prepared for encyclopedia of world trade since 1450, ed. 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. 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 rybczynski theorem along with the stolper samuelson, factorprice equalization and heckscherohlin theorem is one of four key propositions describing the properties of the standard heckscherohlin model with two goods and two factors. Lloyd abstract past attempts to generalise the stolper samuelson theorem have used a matrix of real income terms which is sufficient but not necessary to define a change in utility. In other words, the real income of capital rises and the real income of labor falls. The proposition of the heckscherohlin model that a rise in the relative price of a good raises the real wage of the factor used intensively in that industry and lowers the real wage of the other factor. However, trade policy can affect a countrys steadystate capital stock.
In other words, they think of intrinsic interior points of m. We have, that is, if one industry is more labor intensive than the other, the above comparative statics result is well defined. The real return to the factor used intensively in the export industry will rise in the longrun. The relevance of the stolpersamuelson theorem to the. Symmetrically, pl will fall relative to both pc and pb. The stolper samuelson theorem was originally derived to analyze the effects of a tariff on factor prices in the context of the ho model. While in heckscherohlin theorem we are concerned with the pattern of trade and in samuelson s factorprice equalization theorem with the optimization of world trade, in stolper samuelson theorem we investigate the effect of the imposition of a tariff on the domestic prices of factors i. M m in another typical situation well have a sort of edge in m where nb is unde. The stolper samuelson theorem shows there is a negative relationship between changes in the price of an output and changes in the price of the factor not used intensively in producing that product. Rybczynski1 19231998 in his famous paper factor endowment and.
The relevance of the stolpersamuelson theorem to the trade. The stolpersamuelson theorem when the labor market structure matters a. Assuming the marshallian externalities, a generalization of the samuelson reciprocity relation, the stolper samuelson theorem and its dual rybczynski theorem is demonstrated with n commodities and n inputs. However, the construction he used also suggests that the dual theorem, the stolper samuelson theorem, is incorrect. The slope of the isoprice curve p 1 is a l1 a k1 l 1 y 1. By developing a new theory of trade policy, this paper represents a development in the theory of social con ict and franchise extension because the prior literature has tended to focus on a closed economy setting. Factor price equalization and the stolpersamuelson 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. Likewise, an increase in the price of the laborintensive good increases wage and reduces rent. Stolpersamuelson theorem stolpersamuelson theorem stolper. The first american to win the nobel memorial prize in economics, which he received in 1970 for raising the level of scientific analysis in economic theory. Stolper samuelson theoremi theorem stolper samuelson theorem.
The period experienced a series of dramatic termsoftrade shocks as trade costs and political barriers to trade fell, even as technological change in many of the countries lagged behind see. The stolpersamuelson theorem rachel mcculloch april 2005 this essay is a contribution to michael szenberg, ed. Can the stolpersamuelson theorem explain relative wage. Further it is shown that the weak stolper samuelson property does not coincide with the strong property even when n2. Given the factor intensity assumption, an increase in relative price of good c leads to increase in relative price of t, and viceversa. Then the effect of an own or other commodity price. The stolpersamuelson and rybczynski theorems sanna. The stolper samuelson theorem the neoclassical ho trade model used by stolper and samuelson 1941 assumes that goods of a particular industry are perfect substitutes, regardless of the country of origin, and that costs of production depend on wages of factors, whose supply in each country is fixed. Written on the occasion of the 50th anniversary of the theorem, deardorff 1994 provides a succinct summary of the. The stolper samuelson theorem moving from no trade to free trade raises the returns to the factor used intensively in the risingprice industry, and lowers the returns to the factor used intensively in the fallingprice industry, regardless of which goods the sellers of the two factors prefer to consume.
The relationship between commodity and factor prices commodity prices and factor prices the ss theorem links commodity prices and factor prices. By ignoring the endogeneity of capital, standard analysis is incomplete and can be misleading. Our framework is closely related to this seminal 1. Globalization, regional wage differentials and the stolper. Economic intuition based on the wellknown stolpersamuleson. It also includes reflective papers by both wolfgang f. The stolpersamuelson theorem when the labor market. Theorem suggests, moreover, that the gender wage gap shrinks in countries, which specialize on.
The stolper samuelson theorem sst based on the heckscherohlin samuelson hos model captures the link between an industrys price and the return to its intensively used factor of production. Apr 20, 20 i happened to come across a copy of a book entitled paul samuelson and modern economic theory when browsing the library stacks recently. A generalisation of the stolper samuelson theorem with diversified households. An increase in the price of the capitalintensive good increases the return to capital and decreases the return to the other factor labor. The stopler samuelson theorem predicts that free trade between the united states, a capital abundant country, and mexico, a labor abundant country would. Stolper samuelson theorem see deardorff and stern 1994. The relevance of the stolpersamuelson theorem to the trade and wages debate. Samuelson theorem, lagrange multipliers can be accepted as a suitable instrument for analysis of customs imposition on redistribution of income holders, namely workers and capital owners. A generalization of the samuelson reciprocity relation. The stolper samuelson theorem is a basic theorem in heckscherohlin trade theory. The stolper samuelson theorem the stolper samuelson theorem is one of the central results of heckscherohlin theory q. The stolper samuelson 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. Arrow writes about his work on social welfare, houthhaker on consumption theory, patinkin on money, tobin on fiscal policy, merton on. The stolper samuelson ss theorem demonstrates how changes in prices, induced by changes in tariffs, alter relative factor rewards.
Here a 11 is the amount of labour required to produce 1 unit of cloth, a 21 is the amount of capital required to produce 1 unit of cloth, w and r are the prices of two factors labour and capital and p 1 is the price of cloth. The stolper samuelson theorem predicts that trade will cause countries with relatively scarce supplies of unskilled labor. The stolpersamuelson theorem sst based on the heckscherohlinsamuelson hos model captures the link between an industrys price and the return to its intensively used factor of production. According to the stolper samuelson theorem, the opening of t.
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