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The Stolper-Samuelson Theorem Reconsidered: An Example of Ricardian Dynamic Trade Effects

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  • Richard E. Baldwin

Abstract

Standard trade theory views the capital stock as an endowment. However, trade policy can affect a country's steady-state capital stock. By ignoring the endogeneity of capital, standard analysis is incomplete and can be misleading. For instance, when capital in endogenous, the Stolper-Samuelson theorem incorrectly predicts the long-run impact of a tariff n factor rewards in a 2-by-2 trade model. Moreover, the output effects of a trade policy can be greatly amplified by its indirect effect on the steady-state capital stock. Since this indirect effect may take a very long time to be fully realized, trade policy can have a long-lasting effect on growth. Ricardo first studied this link between trade and steady-state factor supplies.

Suggested Citation

  • Richard E. Baldwin, 1989. "The Stolper-Samuelson Theorem Reconsidered: An Example of Ricardian Dynamic Trade Effects," NBER Working Papers 3110, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:3110
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    References listed on IDEAS

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    1. Grossman, Gene M & Helpman, Elhanan, 1989. "Product Development and International Trade," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1261-1283, December.
    2. Grossman, Gene M & Helpman, Elhanan, 1990. "Comparative Advantage and Long-run Growth," American Economic Review, American Economic Association, vol. 80(4), pages 796-815, September.
    3. Baldwin, Richard E, 1992. "Measurable Dynamic Gains from Trade," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 162-174, February.
    4. Wolfgang F. Stolper & Paul A. Samuelson, 1941. "Protection and Real Wages," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 9(1), pages 58-73.
    5. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-1176, December.
    6. Findlay, Ronald, 1984. "Growth and development in trade models," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 4, pages 185-236, Elsevier.
    7. Richard Baldwin, 1989. "The Growth Effects of 1992," NBER Working Papers 3119, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Siebert, Horst & Rauscher, Michael, 1991. "Neuere Entwicklung der Außenhandelstheorie," Kiel Working Papers 478, Kiel Institute for the World Economy (IfW Kiel).

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