Stolper-Samuelson Theorem
Trade's distributional bite: who wins and who loses inside a country when it opens up.
Definition
The distributional theorem of trade: a rise in a good's relative price raises the realrealAdjusted for inflation, measured in actual purchasing power. return of the factor used intensively in it and LOWERS the other factor's real return.
Key equation
p(labor-intensive good)↑ ⇒ real wage↑, real return to capital↓ (magnification effect)
The intuition
Opening trade helps your abundant factor and hurts your scarce one, which is why unskilled workers in rich countries can rationally oppose trade that enriches their country overall. The gains exist; they're just unevenly delivered.
Exam tip
Pair it with the compensation principle: winners CAN compensate losers, whether they DO is politics, not economics.
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