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
§ factors of production: a lot of land, not a lot of people, a
§ 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
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