POLI 243 Lecture Notes - Lecture 12: Free Trade, Comparative Advantage, Fixed Cost
4 Sep 2016
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The politics of Trade: Domestic consequences of Specialization
Extensions of the H-O Model –
SS Model
• Stolper-Samuelson Theorem (economists who think about the political aspects of
economics)
o Find examples where voters support protective tarriffs (US). If free trade is
better for the economy, why are they voting against it?
▪ In the 1930s voters preferred protective measures
• US Comparative advantage :
o Population density: ratio between population and land (small population on
large land mass)
o Capital-labor ratio: high wealth compared to the number of workers
o Labor is relatively scarce
o When the US engages in trade, they will export goods made with a lot of
capital and land, but labor is expensive, so the US will import labor intensive
goods (textiles)
• SS model assumes factors of production may move from one application to
another with ease, at no cost
• Specialization will occur rapidly and fully
• Trade changes the demand for inputs, appears as change in income earned by
each factor
o Ex: labor is not an important input for industries that demand high capital
and land inputs, so with complete movement into specialization and import
of labor intensive labor is no longer needed
o Returns are increased on inputs in demand
o Winners are abundant factors of production, losers are scarce factors of
production
• Political results of trade: factor-based (or class) cleavages result
o Workers want to protect their income, so they will oppose free trade
o Political science: labor party, conservative party (represents land owners),
liberal parties
Sector Specific Approach (1970s):
• Argues that SS Model is oversimplified
• Assumes factors can move from one application to another only with great
difficulty at a high costs
o (opposite of SS model that says the movement is easy and inexpensive)
o SS model thinks about long-term effects
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