Stolper-Samuelson theorem
Topic: International Trade Policy, WTO and Intellectual Property · NCERT: Beyond NCERT
Meaning
The Stolper-Samuelson theorem (1941) says that when a good's relative price rises, the real return to the factor used intensively in making it also rises, and the other factor's return falls. Opening to trade therefore helps a country's abundant factor and hurts its scarce factor. This means trade creates losers within a country, even when the nation as a whole gains. It is the economic root of the backlash against trade.
Example
In rich, capital-abundant countries, trade lowers the prices of labour-intensive goods. As a result, factory workers' real wages fall, which feeds anti-trade anger. In labour-abundant India, the same logic suggests that exports of labour-intensive goods such as garments raise the returns to labour.
Don't confuse with
- Heckscher-Ohlin theory: this predicts what a country trades. Stolper-Samuelson predicts who inside the country gains or loses from that trade.
Related concepts
- Absolute advantage
- Comparative advantage
- Gains from trade
- Autarky
- Heckscher-Ohlin theory
- Leontief paradox
- Intra-industry trade
- New trade theory
- Gravity model of trade
- Entrepot trade