The Stolper-Samuelson Theorem Reconsidered: An Example of Ricardian Dynamic Trade Effects
Richard E. Baldwin
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.
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