Question

Consider the Heckscher–Ohlin model and the Stolper–Samuelson theorem. What do they suggest about what are the gainers and the losers from international trade?

Answer 1

Suppose there are two countries ,the united states and France ,producing two goods clothing and steel,using two factors Capital and Labor ,According to an H-O model,suppose steel production is capital intensive and the US is capital abundant.This implies that clothing production is Labour intensive and France is Labour abundant.If these countries move from autarky to free trade then according to H-O theorm the US will export steel to france and france will export clothing to US .Also the price of each country's export good will rise relative to each country's import good .Thus in US Ps/Pc rises while in france Pc/Ps rises.

Distinguishing the winners and loosers more generally can be done by referring to the fundamental basis for trade in the model.Trade occurs because differences in endowments between countries .The US is assumed to be capital abundant and when free trade occurs ,capitalists in the US benefit.France is assumed to be labor abundant and when free trade occurs,workers in France benefit.*Thus in H-O and stopler sameulson theorm, a country's relatively abundant factor gains from trade, while a country's relatively scarce factor looses from trade*.