Economics Explored Does Free Trade Benefit Everyone? A Deep Dive into the Stolper-Samuelson Theorem - EP272
Is free trade always good for workers? Gene Tunny explores the Stolper-Samuelson theorem, which shows how trade can lower wages for some while benefiting others. He discusses key economic insights from Wolfgang Stolper and Paul Samuelson, real-world historical examples, and the implications for today’s global trade debates.
If you have any questions, comments, or suggestions for Gene, please email him at contact@economicsexplored.com.
Timestamps for EP272
- Introduction (0:00)
- Explanation of Comparative Advantage and Free Trade (1:50)
- Background on Wolfgang Stolper and Paul Samuelson (5:50)
- The Heckscher-Ohlin Model and Indirect Factor Arbitrage (16:37)
- Stolper-Samuelson Theorem and Its Implications (26:35)
- Empirical Evidence and Historical Applications (31:53)
- Conclusion and Future Directions (32:19)
Takeaways
- Free Trade Creates Winners and Losers – The Stolper-Samuelson theorem predicts that free trade benefits the owners of a country’s relatively abundant factors (e.g., capitalists in capital-rich countries) but can harm the owners of relatively scarce factors (e.g., workers in industrialised economies).
- Economic Theory Still Favors Free Trade Overall – While trade can hurt specific groups, economists argue that overall national income rises, making it possible (though not always politically feasible) to compensate the losers.
- Historical Evidence Supports the Underlying Theory – Examples from 19th-century trade patterns show factor price convergence, with land rents rising in the U.S. while falling in Britain due to increased trade.
- Trade Policy Shapes Political Alliances – Farmers in land-rich nations like Australia and the USA often supported free trade, while industrial workers in capital-rich nations tended to favor protectionism.
Links relevant to the conversation
The previous episode with Ian Fletcher:
Stolper and Samuelson’s 1941 paper “Protection and Real Wages”:
https://academic.oup.com/restud/article-abstract/9/1/58/1588589
William Bernstein’s book “A Splendid Exchange: How Trade Shaped the World”:
https://www.amazon.com.au/Splendid-Exchange-Trade-Shaped-World/dp/0802144160
Roger Backhouse’s book “Founder of Modern Economics: Paul A. Samuelson: Volume 1: Becoming Samuelson, 1915-1948”:
https://www.amazon.com.au/Founder-Modern-Economics-Samuelson-1915-1948/dp/0190664096
Edward Leamer’s paper on the Hecksher-Ohlin model in theory and practice:
https://ies.princeton.edu/pdf/S77.pdf
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Full transcripts are available a few days after the episode is first published at www.economicsexplored.com.