67. STOLPER-SAMUELSON THEOREM | Assumptions | Diagrammatic Explanation ( International Economics )

#international_economics #stolper_samuelson_theorem #internaltional_trade
The Stolper–Samuelson theorem is a basic theorem in Heckscher–Ohlin trade theory. It describes the relationship between relative prices of output and relative factor rewards—specifically, real wages and real returns to capital.

The theorem states that—under specific economic assumptions (constant returns to scale, perfect competition, equality of the number of factors to the number of products)—a rise in the relative price of a good will lead to a rise in the real return to that factor which is used most intensively in the production of the good, and conversely, to a fall in the real return to the other factor.
The Stolper-Samuelson theorem is one of the central results of Heckscher-Ohlin theory, itself one of the principal theories of international trade. It provides a definite answer to a central question in applied economics: What is the effect of changes in the prices of goods, caused for example by changes in tariffs, on the prices of factors of production? As first presented by Wolfgang Stolper and Paul A. Samuelson (1941), it dealt with a very special framework with many restrictive assumptions, most notably that the economy consists of only two broad sectors, and that production uses only two factors (often labeled capital and labor). However, subsequent theoretical work has shown that essential features of the theorem hold much more generally. It has also been applied to a range of empirical issues, including the effects of increased globalization on income distribution in developed countries, and the long-run political allegiances of classes and interest groups.

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