Lecture 9 - Feb 6th, 2019
The Politics of Trade
Aklin, Arias, Deniz, Rosendorff, “Domestic Politics of Trade Policy” unpublished paper, (2016)
Lecture Notes
The Politics of Trade
The Political Consequences of Specialization
- Expanding on our understanding of the consequences of trade
- Last lecture: notion of comparative advantage, why economists consider free trade
mutually beneficial, etc.
- Recall: If free trade is mutually beneficial for two countries, why don’t we see it
happening more often?
- This question was very hard to answer until Heckscher and Ohlin had done their work on
the sources of comparative advantage. (1920’s)
- This opened up the door for others to model the concept of specialization, i.e. the impact
trade has within countries
- How does trade redistribute income?
Extensions of the H-O Model
Stolper-Samuelson Theorem (1941)
- Heckscher and Ohlin made their arguments in the 1920’s
- 1930’s was a period of time wracked by protectionist tariffs.
- At the beginning of the Great Depression, the U.S.’s response was to raise a very
high tariff, which led to retaliation from other countries.
- At the end of the 1930’s, Wolfgang Stolper and Paul Samuelson asked:
- If free trade is beneficial to a country, why would so many people support a protectionist
tariff? (i.e. in a democracy like the US)
- Created a model to figure out what the impact of trade liberalization is
(Stolper-Samuelson Theorem)
Assumes factors of production may move from one application to another with ease, at no cost
- This is a simplifying assumption, to make the model more clear
Specialization would occur rapidly and fully
- In terms of the U.S. in the 1930’s, they were well endowed in capital and land, but not
labour (relatively)
The Politics of Trade
Aklin, Arias, Deniz, Rosendorff, “Domestic Politics of Trade Policy” unpublished paper, (2016)
Lecture Notes
The Politics of Trade
The Political Consequences of Specialization
- Expanding on our understanding of the consequences of trade
- Last lecture: notion of comparative advantage, why economists consider free trade
mutually beneficial, etc.
- Recall: If free trade is mutually beneficial for two countries, why don’t we see it
happening more often?
- This question was very hard to answer until Heckscher and Ohlin had done their work on
the sources of comparative advantage. (1920’s)
- This opened up the door for others to model the concept of specialization, i.e. the impact
trade has within countries
- How does trade redistribute income?
Extensions of the H-O Model
Stolper-Samuelson Theorem (1941)
- Heckscher and Ohlin made their arguments in the 1920’s
- 1930’s was a period of time wracked by protectionist tariffs.
- At the beginning of the Great Depression, the U.S.’s response was to raise a very
high tariff, which led to retaliation from other countries.
- At the end of the 1930’s, Wolfgang Stolper and Paul Samuelson asked:
- If free trade is beneficial to a country, why would so many people support a protectionist
tariff? (i.e. in a democracy like the US)
- Created a model to figure out what the impact of trade liberalization is
(Stolper-Samuelson Theorem)
Assumes factors of production may move from one application to another with ease, at no cost
- This is a simplifying assumption, to make the model more clear
Specialization would occur rapidly and fully
- In terms of the U.S. in the 1930’s, they were well endowed in capital and land, but not
labour (relatively)
