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The Politics of Trade: The Domestic Consequences of Specialization

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Political Science
POLI 243
Mark Brawley

The Politics of Trade: The Domestic Consequences of Specialization 4/3/12 11:06 PM Recap: We went from the basic logic of comparative advantageà people raise questions about what they have the comparative advantage in. Factors of production, looking at ratios in a country not the total number. Extensions of the H-O Model • The Stolper-Samuelson Theorem o If comparative advantage is right, and trade does deliver advantage, why do some countries have trouble adopting the free trade policies? o The 1920s was a period of economic hardship where free trade fell drastically. o 1931: Why are so many people opposed to free trade? o Assumes factors may move from one application to another with ease, at no cost. o Specialization occurs rapidly and fully o Trade causes domestic prices to change, effect is passed on to returns earned by factors o US § factors of production: a lot of land, not a lot of people, a rich country § the us would export capital intensive goods and import labor intensive goods § by importing labor intensive goods, the demand for labor will drop à the country as a whole benefits but the labor market is hurt o Owners of the relatively abundant factors of production will gain from free trade, those who own the relatively scare factors of production will lose o Critical: One market for all land, one market for all capital, one market for all labor o Factor- based cleavages result à Class Cleavages • Sector-Specificity o Problem with the Stolper-Samuelson model was saying there was no cost to switch between one factor to another o Assumes factors can move from one application to another with great difficulty and only at a high cost o People are "trapped” in the job they are doing, the machines are very job specific o Specialization occurs slowly and is never complete o Trade causes domestic prices to change; effect is passed on
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