NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Stolper-Samuelson Theorem Reconsidered: An Example of Ricardian Dynamic Trade Effects

Richard E. Baldwin

NBER Working Paper No. 3110*
Issued in September 1989
NBER Program(s):   ITI    IFM

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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