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Stolper-Samuelson Is Dead: And Other Crimes of Both Theory and Data

Stolper-Samuelson Is Dead: And Other Crimes of Both Theory and Data

Chapter:
(p.87) 2 Stolper-Samuelson Is Dead: And Other Crimes of Both Theory and Data
Source:
Globalization and Poverty
Author(s):
Donald R. DavisPrachi Mishra
Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226318004.003.0003

This chapter explores theoretical linkages between trade and poverty. It is argued that applying trade theory to suggest that liberalization will raise the wages of the unskilled in unskilled abundant countries is “worse than wrong—it is dangerous.” Trade liberalization with respect to competing goods produces quasi-Stolper-Samuelson effects. Trade liberalization against a good that is a poor substitute for a local variety will affect local factor prices only weakly. Economic geography is one of the most important analytic developments in the study of trade of the 1990s. It is shown that there are dynamic gains even for the country that in the long run will have a lower per capita income as a result of trade. With markets imperfect, both the level and the location of innovation can be nonoptimal. Labor market rigidities may explain why declining industries find it hard to fire workers.

Keywords:   trade, poverty, liberalization, wages, quasi-Stolper-Samuelson effects, economic geography, labor market

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