Question

What is the outcome of the Stolper-Samuelson Theorem??? Account for lessons derived and offer appropriate policy recommendations.

Answer 1

The Stolper–Samuelson theorem provides a description on the relationship among relative prices of output and relative factor rewards especially the real wages and real returns to capital. According to theorem the competitive pressures of free global trade will benefit the abundant factor by increasing the amount it is paid, and harms the scarce factor by reducing the payment. Thus the free trade is favored by the owners of relatively abundant resources while trade restrictions are favored by the owners of relatively scarce factors.

Two lessons derived of the Stolper-Samuelson theorem are:

- We can expect scarce factors to lobby their respective governments for restrictions on the trade because they tend to lose from trade.

-- Although from free international trade some factors may lose, however trade may provide overall gains for a country from trade relative to autarky. It indicates that the winners will gain more from trade than the losers lose. Therefore there is a possibility that the winners may compensate the losers and consequently all factors will become better off in comparison to that they would be in autarky

Stolper-Samuelson Theorem leads to a significant policy implication that the strategy of export promotion instead of import substitution will be appropriate more in the less developed nations for the achievement of twin objectives of equitable income distribution and economic growth.