Is Stolper-Samuelson dangerous and FPE a failure?
The Heckscher-Ohlin model has spawned the twin theorems of Stolper-Samuelson and factor-price equalization (FPE), both of which concern the effects of international trade on wages and income distribution. A recent literature, critical of both theorems, claims that they no longer serve as a useful guide for understanding the complex web of trade and wages. This literature also claims that the twin theorems are empirically misleading and irrelevant. The present essay argues that the critics have exaggerated the empirical failure of the twin theorems and, more importantly, they have missed the central message of the theorems; especially, that of Stolper-Samuelson on the optimality of free trade.
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99/25, College Dublin, Department of Political Economy-.
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