Who Gains and Who Loses

from Trade?
CHAPTER 5 (Pugel, T.)
Who Gains
And Who
Loses Within
A Country
Winners and
Losers: Short
Run Versus
Long Run
3 Implications of The H–O Theory

1. The Stolper–Samuelson Theorem

This theorem states that, given certain conditions and assumptions, including full adjustment to a new long-run
equilibrium, an event that changes relative product prices in a country unambiguously has two effects:
•It raises the real return to the factor used intensively in the rising-price industry.
• It lowers the real return to the factor used intensively in the falling-price industry.
3 Implications of The H–O Theory

2. The Specialized-Factor Pattern

The more a factor is specialized, or concentrated, in the production of a product whose

relative price is rising, the more this factor stands to gain from the change in the product
price.
The more a factor is concentrated into the production of a product whose relative price
is falling, the more it stands to lose from the change in product price.
3 Implications of The H–O Theory

3. The Factor-Price Equalization Theorem

This theorem states that, given certain conditions and assumptions, free trade equalizes not only product prices
but also the prices of individual factors between the two countries.
The theorem predicts that, even if factors cannot migrate between countries directly, with free trade
• Laborers (of the same skill level) earn the same wage rate in both countries.
• Units of land (of comparable quality) earn the same rental return in both countries.
Does
Heckscher–Ohlin
Explain Actual
Trade Patterns?