Economics Explored

Does Free Trade Benefit Everyone? A Deep Dive into the Stolper-Samuelson Theorem - EP272

Feb 1, 2025

49:28

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.

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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.