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How the income, which expresses the value obtained by the factor owners as a result of the production process, is distributed among individuals is important for socio-economic development as well as how it is obtained. Because income distribution is affected by many macroeconomic variables and affects economies of the countries. According to the Stolper-Samuelson Theorem, which explains the effects of free foreign trade on income distribution, the trade liberalization process reveals a trend of equalization in income distribution. The main purpose of the current study is to test whether free trade yields a synchronized trend in the distribution of income for Turkey within the framework of the Stolper-Samuelson theorem. In this study, commercial openness and income distribution inequality relationship was analyzed using data for years 1987-2018 in Turkey by Toda-Yamamoto causality. As a result of the econometric analysis, it was found out that the determination of a one-way causality from the real commercial openness to the income distribution inequality does not reveal a tendency to equalization in the income distribution, as opposed to what is suggested in the Stolper-Samuelson Theorem.

Can we expect shocks in trade openness to affect the quality of the domestic political process, and in what way? Isolating cross-country heterogeneity in the distributional effects of trade shocks for different relative factor endowments as a critical element for theory development, the paper tackles the puzzle by formally developing and solving a new probabilistic model to link the distributional effects of shocks to endogenous institutional change via induced conflict between a capital-intensive and a labour-intensive coalition. The model of distributional conflict combines a political selection stage to select the rate of income redistribution by majority voting and a constitutional conflict stage among factor-intensive coalitions whose steady state outcome determines the level of institutional inequality assigning the “rules“ of political selection. The former is modelled via a canonical weighted median voter setup with the (infinitely many) weights-distributions induced by the value of the steady state outcome of the constitutional conflict stage, while the latter is modelled as a Tullock contest with an endogenous contest success function and the heterogeneous coalition prizes equalling the expected value of the contest to each coalition as a function of the coalitions' efforts. Closed form solutions are derived for (i) the expected outcome of distributional conflict in terms of institutional quality and (ii) the intensity of conflict. Via comparative static analysis based on the Stolper Samuelson theorem in Heckscher-Ohlin trade theory, it is formally shown that positive shocks in trade openness always induce higher institutional inequality irrespective of heterogeneity in the underlying distributional effects, but that the expected mechanisms driving the drop in quality differ across capital-abundant and labour-abundant countries.

This paper develops and implements a novel test of the Stolper-Samuelson theorem. We use nationally-representative matched employer-employee panel data from 1997 through 2015 to study the effect of the rise in China’s exports on French worker earnings. Our version of the Stolper-Samuelson theorem states that there is a negative correlation between occupation exposure to Chinese competition and change in worker earnings. First, we document substantial heterogeneity in trade adjustment across occupations. Then, consistent with the Stolper-Samuelson prediction, we show that workers initially employed in occupations more intensively used in hard-hit industries experience larger declines in earnings. We also show that workers tend to move out of hard-hit industries, but they tend to remain in their initial occupation.

Celem artykułu jest objaśnienie w kategoriach ekonomii politycznej, dlaczego państwa Europy Środkowej i Wschodniej, szczególnie Rumunia, wydają się nie być w stanie, przynajmniej w krótkim i średnim zakresie czasowym, poprawić swojej względnej pozycji w europejskim obszarze ekonomicznym, a szczególnie w Unii Europejskiej, do której od niedawna należą. Rozpoczynając od stanowiska wyrażonego przez Jeana Francoisa Revela w połowie lat dziewięćdziesiątych, w którym podsumował on wysiłki, jakie gospodarka musi podjąć, by przejść z gospodarki planowanej do rynkowej, autor kolejno rozważa postulat sformułowany w twierdzeniu Stolpera-Samulesona, dowodzący, że rozwijającej się gospodarce niekoniecznie najlepiej służy nadmierne otwarcie się na przepływ środków w handlu. Na podstawie danych autor udowadnia, że korzyści z integracji na wolnym rynku są do pewnego stopnia niepodważalne, podobnie jak koszty takiego procesu, które z pewnych powodów, objaśnionych w artykule, czasem przeważają nad zyskami. Niewielkie gospodarki wolnorynkowe podlegają negatywnym wpływom nadmiernego otwarcia na handel, wynikającym z integracji, ponieważ zamiast rozwijać "normalne" relacje współzależności, popadają w związek "zależności" i tym samym osiągają niechciany i niepożądany status "bycia zależnym". Zależności skazują je na "podążanie" za "pewnego rodzaju metropolią" i tym samym poprawa ich relatywnej pozycji staje się niemal niemożliwa lub trwa tak długo, że jest to trudne do zaakceptowania. Ludzie mają zatem rację, gdy czują się tym sfrustrowani i rozeźleni, a jednocześnie mieli rację, gdy decydowali o włączeniu do wspólnego rynku, gdyż w momencie wychodzenia z komunizmu nie zdawali sobie sprawy, że nie znajdowali się na tym poziomie, do którego dołączyli, lecz znacznie poniżej.

The bell is still tolling for Samuelson’s works on trade theory. This chapter looks at some models he presented that are still relevant for global trade driven by communication and digital technologies. The models rest on a sound general equilibrium base, for which Samuelson used theoretical and operational perspectives. The models invoke free trade, which bequeaths potential gains for all players. In today’s world of increasing productivity for many underdeveloped economies, the Stolper–Samuelson theorem points to the idea that rich nations which lose comparative advantages may suffer lower wages and lower net gains from trade. An allied theorem relates to factor price equalization where competition in final products can cause convergence in factor prices. This chapter presents Samuelson’s fundamental contributions to international trade theory, including his contribution to the transfer problem, which constituted the main research programs in the last half-century or more in this field of economics, and are still the paradigms for future research.

This paper draws on existing empirical literature and an original theoretical model to argue that technical change does not have to be skill-biased in developing countries. Instead, the extent to which technology adoption in developing countries favors skilled workers depends on a number of factors. Free trade induces technology that favors skilled workers in skill-abundant developing countries and that favors unskilled workers in skill-scarce developing countries, and therefore amplifies the predicted wage effects of trade liberalization. Developing countries experience technical change that is skill-biased when imported skill-biased technologies become relatively cheaper. Increased skill supply further biases technical change in favor of skilled labor. These features aid our understanding of the observed rises in inequality within developing countries, the absence of a significant downward effect of expanded educational attainment on skill premia, and the differential effects of trade liberaliza...

Domestic politics shape international trade policy, but exactly how and why remains an open question. We explore the cutting-edge literature that focuses on how agents' interests are formed, whose interests are organized, and how those interests interact with each other via domestic political institutions to generate both trade policy and international cooperation over trade more broadly. In turn, trade policies operate as a feedback loop. International cooperation generates information via international organizations, treaties, and more informal regimes, which affects the domestic politics conflict in substantive ways. We explore each of these topics and suggest future research paths. Keywords: trade theory; GATT ; WTO ; Heckscher–Ohlin model; Stolper–Samuelson theorem; Ricardo-Viner model; new new trade theory

The connection between changes in commodity prices and the distribution of income is a question of active interest since the 1941 Stolper-Samuelson Theorem. In higher dimensions results are obtained only if structure is imposed. Here we assume that each of n-industries is alike in the shape of the profile (rib) of distributive factor shares with a permutation of factor numbering such that industry n is most intensive in factor n. Such a structure reveals either a strong version of the Stolper Samuelson Theorem or a Neighborhood oscillation pattern depending on the shape of the share ribs.

The GDP function chooses the most efficient point on the production possibility frontier with curved surface. We derive a three-sector Cobb–Douglas GDP function including three goods (agriculture, manufacturing, and services) and three factors (capital, labor, and land). It is very difficult to derive the Stolper–Samuelson theorem in the three-sector version. But we derive it numerically. By applying the empirical factor income share across sectors, we show that an increase in the relative agricultural goods price in terms of manufacturing goods decreases the real interest rate and the wage rate while it increases the land rent. On the other hand, an increase in the relative service price in terms of the manufacturing goods decreases the real interest rate while it increases the wage rate and the land rent. The three-sector Cobb–Douglas GDP function with three factors must be useful for empirical studies in structural change.

Using longitudinal survey data from Korean workers, we examine whether the effects of import competition on post-displacement wages are heterogeneous between skilled and unskilled workers for trading partners with different endowments of (un)skilled labor. Reemployment wages of displaced workers show a decrease for skilled workers but an increase for unskilled ones when imports from an advanced country rise, whereas they decrease for unskilled workers but increase for skilled ones when imports from a developing country rise. The results provide support for the Stolper–Samuelson theorem.

Barring very few exceptions, international trade has never and nowhere been free, even though only under extraordinary circumstances are deviations from free trade optimal. To explain this puzzle, an entire literature on the political economy of trade policy has emerged over the last three decades. In this literature, one common feature is that trade policies are chosen not with the aim of maximizing national economic efficiency and aggregate welfare, but set by politicians and policy makers whose objective functions diverge from aggregate welfare. Trade policies, in this view, are often used as indirect tools to redistribute income to certain targeted groups. The identity of these groups depends on (a) the type of political economy framework (lobbying or majority voting) assumed, (b) the actual economic, political, and geographic characteristics of the various sectors in the economy that determine which of them are politically organized, and (c) the political and economic ideology of the government…

WOS:000390638200010 This paper is an extension of the specific factors model to the study of relative wages by considering a multi-industry model with skilled and unskilled labor as the only mobile factors. We show that for changes in the price of a single industry, the impact on the skill premium is usually modest and sometimes the sign is the reverse of expectations. The elasticity of substitution between factors is critical for single-sector price changes. To generate a Stolper-Samuelson magnification effect, it is necessary to have a large number of price changes across industries intensive in either skilled or unskilled labor. (C) 2016 Elsevier Inc. All rights reserved.

This paper presents a new approach to the two-sector optimal taxation problem. We derive the optimal labor income tax rate which depends on factor intensity across sectors. It is the labor intensity that determines the initial wage rate, and therefore the optimal labor tax rate. We show that an increase in the initial relative price of consumption goods decreases the optimal tax rate on labor income in the case that the consumption goods sector is capital-intensive while it increases the optimal tax rate on labor income in the case that the investment goods sector is capital-intensive.

The empirical literature on trade liberalization reflects two puzzles. First, the effect of trade liberalization on economic growth is ambiguous. Second, the effect of trade liberalization by developing countries on their income distribution is ambiguous. This paper attempts to explain simultaneously these two puzzles, based on a multiple-cone neoclassical growth model. The model shows that countries that are labour abundant in a global sense may see a rise in income inequality and a fall in per capita gross domestic product with liberalization if they are capital abundant in a local sense. The results suggest that the existence of multiple cones and the multiple steady states within the same cone, or the existence of global and local factor abundances, can be a possible explanation of these puzzles. Copyright 2012 Oxford University Press 2012 All rights reserved, Oxford University Press.

In order to answer the pertinent question why developing countries are showing penchant for foreign capital over the last two decades in spite of its detrimental effects as revealed from the conventional two-sector mobile capital version of Harris–Todaro (HT) model in the presence of protectionist policy; this paper, in terms of a three-sector HT type general equilibrium model with agricultural dualism where advanced agricultural sector produces a non-traded intermediate input using capital apart from labour and land for the agro-based industry in the urban sector, tries to show that foreign capital inflow may not only improve social welfare, but also lower the magnitude of urban unemployment of labour or may lead to the phenomenon of ‘jobless growth’.

By constructing a two-country, three-commodity, three-sector theoretical model, we show that trade liberalisation has double effects, i.e., ‘factor price effect’ and ‘technology progress effect’, on labour income share. China’s deviation from the Stolper–Samuelson Theorem is mainly due to the negative effect of technology progress, which weakens the positive pulling effect of trade liberalisation on labour income share. Based on the panel data of 29 provinces and cities in China dated from 1987 to 2006, we build up an empirical model. We find that because of the offsetting cancellation of opposite effects, the overall effect of trade liberalisation on labour income share is insignificant. However, when eliminating the negative effect of technology progress on labour income share, the effect of trade liberalisation becomes significantly positive. Moreover, the positive effect of trade liberalisation has become smaller in recent years. This is because of the transformation of export structure, which has led to a decrease in the positive effect of export on labour income share.

Incidence of child labor is a disturbing feature of an emerging market economy. In the present paper, I would try to explore whether globalization policy namely agricultural trade liberalization has any negative impact on the incidence of child labor in a developing economy. For our work, I use a three-sector general equilibrium structure to highlight the linkage between different sectors and also focus on the fact that the effects of globalization are crucially dependent on the factor intensity ranking and factor specificity. Multiple cross effects that are present in a three-sector general equilibrium structure are the driving forces behind the results.

We prove that the English auction (with bidders that need not be ex ante identical and may have interdependent valuations) has an efficient ex post equilibrium. We establish this result for environments where it has not been previously obtained. We also prove two versions of the Stolper–Samuelson theorem, one for economies with n goods and n factors, and one for non-square economies. Similar assumptions and methods underlie these seemingly unrelated results.

This paper investigates the Rybczynski theorem, the Stolper–Samuelson theorem, and the Heckscher–Ohlin theorem in a two-factor vertical production chain model of trade. For this purpose, capital is introduced into the model of Yano and Dei [Yano, M., & Dei, F. (2003). Trade, vertical production chain, and competition policy. Review of International Economics, 11(2), 237–252.]. A primary analytic device is the economy-wide production curve. This curve is derived under autarky and free trade, respectively.

In this paper, I study what factors determined the changes in Mexico's regional wage differentials during the nineties. I exploit the regional variation in exposure to international markets to identify the effects of NAFTA on wages and the skill premium. The results support the presence of Stolper–Samuelson type of responses during Mexico's trade liberalization: regions more exposed to globalization appear to have exhibited an increase in overall wage levels, but a decrease in the skill premium, relative to other regions of the country. The results suggest that trade liberalization has a spatial dimension that is usually neglected in traditional models.

Both the Heckscher-Ohlin theorem and the factor price equalization theorem depend on or related to trade equilibriums. The trade equilibrium is the price equilibrium of production, consumption and trade. This study provides a price solution for the Heckscher-Ohlin model by using HOV assumption that consumption share is the GNP share. It also identifies the price solution set for all possible values of the consumption share and proves that there is a unique equilibrium price for a given consumption share. New trade effects, the generalized Rybczynski theorem and the generalized Stolper-Samuelson theorem, based on the terms of trade, are developed. And the study demonstrates that the equilibrium price is the best price for the abundant factor and the worst price for non-abundant factor for each country from the view of factor endowments. The study receives that with economic growth and the changes of factor endowments, the new price equilibrium will create new gains from trade. Overall, this paper studies economic interactions after trade; it is a rarely touched area of the H-O studies.

Compensation hypothesis, which has established a link between trade openness of countries and levels of government spending, has been widely accepted in the literature on trade policy and international globalization. However, the nature of the distribution effects produced by trade is likely to determine the existence of more or less redistribution demands from the median voter, and therefore government growth. In this paper I hypothesize that the effects of trade openness on redistribution demands are not homogeneous between countries, and I argue that they depend both on the type-of-factor endowment of the economy and the size of the sectors more likely to be affected by trade. I test this hypothesis with ISSP data for 23 countries, both with a country level and an individual level analysis. The results show that redistribution demands issued from trade openness of the median voter of a country are largely conditional on GDP per capita and size of potential loser sectors such as manufacturing: while trade has a negative effect on pro-redistribution preferences in “poor” and/or in “low manufacturing” countries; it positively affects pro-redistribution preferences in “rich” and/or in “high manufacturing” countries. Additionally, I empirically observe that the size of the loser sector plays a more important mediating role than the type-of-factor endowment of the economy.

Reductions in trade barriers have been suggested as a possible cause of the growing wage inequality between skilled and unskilled labour in developed countries. Wage inequality, however, has also increased in some developing countries. Coupled with this wage inequality has been a rise in the relative employment of skilled workers. These facts are inconsistent with Stolper–Samuelson predictions concerning trade liberalization that arise in a standard two-country Heckscher–Ohlin–Samuelson (HOS) trade model. This paper presents a modified HOS model where Ricardian intra-industry trade in the skill-intensive high-tech sector is driven by international differences in adoption lags incorporating new technology. A reduction in trade barriers within the high-tech sector may lead to an increase in wage inequality in both developed and developing countries, or just one country, with a concurrent increase in the skill composition of the labour force.

This paper deals with the effect of international trade with newly industrialized countries (NICs) on wage inequality in the European Union (EU). We apply a two-stage mandated wage-estimation procedure to assess the respective impact of trade and technology on the relative wages of low-skilled workers. We find weak evidence of a positive impact on the wages of high-skilled workers with regards to trade with high-wage South-East Asian NICs but no evidence for other groups of NICs. We also find evidence of technological change, induced by trade with high-wage South-East Asian NICs. However, this indirect effect of international trade seems to have reduced wage inequality in the EU.

If factors of production are mobile between industries, the Stolper–Samuelson Theorem predicts that cleavages over trade policy will form along factor lines. Conversely, if factors are immobile, cleavages will form along industry lines. These two hypotheses are empirically examined using micro-data from a survey conducted during the 1988 Canadian federal election—a de facto referendum on free trade. Factors of production are found to be important determinants of preferences on trade policy. However, the industry of employment also helps determine preferences on trade policy. These results are consistent with partial factor mobility.

We develop a wage differential model with a unionized and a non-unionized informal sector for a small open economy. The unionized wage rate adjusts to a cost of living index and the informal wage is market-determined. In this structure, a Stolper-Samuelson type result holds without any assumption regarding factor-intensity ranking.

The factor–industry detachment corollary of the Stolper–Samuelson theorem predicts that the economic interests of trade policy are independent of industry and depend only on the type of factor ownership. This paper examines whether congressional voting patterns on trade policy are determined by the factor endowment of the constituency or by its industrial composition. The industry model of trade policy determination is not rejected by the empirical tests while the results for the factor model are ambiguous. This provides evidence that the literature examining congressional voting patterns on broad-based trade policy should re-evaluate the maintained assumption that factors do not matter.

This paper provides empirical evidence on the relationship between globalization and the relative wages of production and nonproduction workers for U.S. manufacturing industries during 1961–1991. Using a multisector model with three intersectorally mobile factors (two types of labor and capital), we derive price and wage changes caused by technological progress and endowment changes. We then calculate residual price and wage changes, which capture the effects of globalization. On examination, these residuals reveal for the 1970s and 1980s Stolper–Samuelson effects as well as product price changes consistent with the predictions of the Heckscher–Ohlin model for the U.S. economy. These two results together imply that international trade and investment cannot be ruled out as one of the forces behind the observed increase in the skill premium in U.S. manufacturing industries. In effect, we find that 50% of the variation in the premium can be attributed to the impact of globalization.

The purpose of this paper is to examine the Stolper-Samuelson Theorem in the context of India which is one of the central results of Heckscher-Ohlin theory. This theorem provides a definite way of analysing the effect of change in the prices of goods on the prices of factors of production due to tariffs. Since the theorem has been couched in terms of increasing tariffs however, the paper attempts to look for obverse of this theorem by emphasising on a certain issue. Since tariffs are declining, then it is argued that import-substituting industries would suffer at the cost of export-promoting industries. The study deals with three variables-Factor Price Ratio (FPR), Terms of Trade (TOT) and Wholesale Price Index (WPI) covering period 1992-2010. Year has been taken as the exogenous variable. The methodology has been developed for the construction of semi-log and multiple regression models to analyse the impact of Terms of Trade on Factor Price Ratio. The paper shows that Stolper-Samuelson Theorem does not hold good in the case of India and it is the Wholesale Price Index which actually shows a favourable impact on FPR.

This paper examines the effects of agricultural and nonagricultural trade policy changes in the Brazilian economy using a computable general equilibrium model (CGE). An extended Salter-Swan model is employed to verify if the Stolper-Samuelson theorem (SST) holds after having a trade barrier removed and the consequences in terms of prices, production and resources allocation. Results show that the Stolper-Samuelson hypothesis is reversed when imports and domestic goods are poor substitutes. Reduction in import tariff increases national income, which implies that inappropriate trade policy adjustments can stand in the way of promoting rapid and equitable economic growth. Further, our results show that changes in relative factor prices in Brazil depend not only on changes in commodity prices, as in the SST, but also on changes in the balance of trade and factor endowments. This study mainly proposed to verify a specific result from a theoretical trade model, which makes important to stress the carefulness about the empirical results obtained to the Brazilian trade policies. This paper examines the effects of agricultural and nonagricultural trade policy changes in the Brazilian economy using a computable general equilibrium model (CGE). An extended Salter-Swan model is employed to verify if the Stolper-Samuelson theorem (SST) holds after having a trade barrier removed and the consequences in terms of prices, production and resources allocation. Results show that the Stolper-Samuelson hypothesis is reversed when imports and domestic goods are poor substitutes. Reduction in import tariff increases national income, which implies that inappropriate trade policy adjustments can stand in the way of promoting rapid and equitable economic growth. Further, our results show that changes in relative factor prices in Brazil depend not only on changes in commodity prices, as in the SST, but also on changes in the balance of trade and factor endowments. This study mainly proposed to verify a specific result from a theoretical trade model, which makes important to stress the carefulness about the empirical results obtained to the Brazilian trade policies.

We build a theoretical model that incorporates unionization in the labor market into a Heckscher-Ohlin-Samuelson (HOS) framework to in- vestigate the impact of unionization on the Stolper-Samuelson Theorem. To capture the American economy case, we assume that unskilled labor in the manufactured goods sector is unionized, and that sector is intensive in skilled labor, and that trade liberalization increases the relative price of manufactured goods. In the HOS model, trade liberalization induces a reallocation of production towards the sector that uses intensively the country's most abundant factor. The resulting change in relative labor de- mand impacts wage bargaining in the unionized sector, which, in turn, has a dampening e ect on the Stolper-Samuelson e ect. Moreover, wages of unionized workers are even less responsive to trade liberalization. Through traditional mandated-wages regressions, we show that skilled-wage di er- entials changes were less pronounced among more unionized sectors in the U.S. economy for the 1979-1990 period.

The effect of international trade on personal distribution of wealth and income is examined via the Stolper–Samuelson Theorem. It is shown that free trade between North and South increases (decreases) wealth and income inequality in the North (South). A concept of three classes – lower, middle and upper – is developed. It is shown that North–South free trade in goods leads to a middle class squeeze in the North and a middle class expansion in the South.

Past attempts to generalize the Stolper–Samuelson theorem have used a matrix of real income terms which are sufficient but not necessary to define a change in utility. One can define a second matrix of terms which are necessary and sufficient for a change in indirect utility. Using this matrix, the paper extends the Stolper–Samuelson theorem to a model of any dimensions and to households which have diversified ownership of factors. The theorem states that there is a positive and a negative element in every row and every column of the matrix showing household responses to changes in goods prices.

For a neoclassical model of an open economy, Ronald Jones shows that for any factor, there is a change in the relative prices of outputs that improves its real reward unambiguously. We consider the real reward increase of any proper subset of factors. If the percentage increases in output prices are chosen in proportion to the chosen group's factor shares in corresponding sectors, then the real reward of each factor in the group increases and the real reward for every other factor falls. This result captures the idea that increases in relative prices of outputs tend to reward those factors that are `intensively' used in the production of the outputs.

The basic economic model of the so-called Heckscher–Ohlin Theory is the two- country two-commodity two-factor model where production functions are linear-homogeneous and the endowment of two factors of production is exogenously given for each country. Besides the factor price equalization theorem and Heckscher–Ohlin theorem discussed in Chap. 10, we can have also two additional well-known theorems derived from this Heckscher–Ohlin model. The first one is the so-called Stolper–Samuelson Theorem (Stolper and Samuelson (1941)) which considers the effects of an import tariff on the factor prices. In other words, it concerns with the changes in factor prices caused by a change in the relative price of two commodities. The second one is called Rybczynski Theorem (Rybczynski 1955) which deals with the changes in the scale of production of two industries caused by a change in the factor endowment in the case of a small country. This is the problem of the effects of the economic growth on the relative scale of the two domestic industries, when the relative price of two commodities is assumed to be constant.

Aid for trade is a new foreign aid initiative to assist recipient countries to build trade-related infrastructure. We formulate a small-country, two-good (i.e., investment and consumption goods), two-factor (i.e., capital and labor) endogenous growth model with learning by doing and intersectoral knowledge spillovers, where the import transport cost depends inversely on public infrastructure. Focusing on the case where the country is incompletely specialized and imports the investment good, we show that a permanent increase in the recipient’s aid/GDP ratio raises the steady-state growth rate if and only if the investment good is more labor-intensive.

In the traditional two-factor, two-sector Heckscher-Ohlin-Samuelson (HOS) trade model, the factor price equalization theorem provides conditions under which free trade, which is assumed to equalize product prices across countries, also equalizes factor rewards. The Stolper Samuelson theorem relates changes in product prices to factor rewards. An increase in the relative price of the labor intensive product increases the real return to labor and re

This paper intends to show that in the presence of domestic distortions, the factor used intensively in the expanding industry could be worse off even though the real return to the factor in both the expanding industry and the contracting industry is increased. On the other hand, in the presence of domestic distortions, the factor used intensively in the contracting industry could be better off even though the real return to the factor in both the expanding industry and the contracting industry is decreased.

Why governments choose the instruments they do to restrict or promote trade is not well understood by scholars in economics and political science (Rodrik 1995). That poor understanding helps explain why much of the theoretical and empirical work in international economics has failed to have much of an impact on policy makers, especially when it comes to agricultural trade policies. In practice, episodes of liberalization and reform are often made in the context of crises or under pressure from outside forces (e.g., trade negotiations) rather than from an internal consensus among policy makers about the efficiency gains from agricultural reform. There are significant differences across sectors, countries, and time, but when it comes to agriculture, government interventions across the world have been particularly widespread and persistent, with significant variance in the aim of policies and the types of instruments used. This chapter is motivated by the question of what motivates governments to tax or subsidize imports and exports. This question, in turn, is important in understanding the constraints that governments perceive they face economically and politically, and in understanding the broader question of the choice of instruments to regulate trade. Better understanding of this question should help in designing multilateral negotiations and agreements that will lead to real reform. A more informed view of the political economy forces that underpin status quo policies is critical in designing and implementing reform strategies.

The Stolper-Samuelson Theorem is still alive and well-and being debated-after fifty years. The original statement of the theorem was couched in a two-factor, two commodity setting in which technology exhibits constant returns to scale and the absence of joint production. Competitive pressures then ensure that if a policy of tariff protection raises the relative domestic price of importables, the real re ward to the productive factor used intensively in the import-competing sector must unambiguously rise. The logic is impeccable, but subsequent attempts to expand the dimensionality of the setting have been less successful in pinning down the effects of protection on real factor returns, a result perhaps neither unwarranted nor undesirable since it reveals that relationships among a small subset of varia bles can be altered by conditions of technology and relative endowments concern ing other variables in the model. A few years after the appearance of the Stolper-Samuelson Theorem a pair of articles by Lloyd Metzler [1949a, 1949b] suggested the possibility that for a large country a tariff might not be protective. If such a (Metzler) paradox were to pre vail, a tariff would be opposed by labor if the import-competing good were labor intensive. I suspect that the Metzler possibility, suggesting a reversal of the Stolper Samuelson Theorem as originally stated, was instrumental in causing the theorem to be recast in terms of the effect of changes in domestic commodity prices on the rewards to domestic factors. It was this commodity price-factor price link that was so painstakingly (and frustratdngly) analyzed in the late 1960's and early 1970's by Kemp and Wegge [1969], Chipman [1969], Uekawa [1971], Inada [1971] and others. By contrast, a recent piece by Learner [1991] serves as a reminder of the trade setting of the original argument. Learner raises the question of the atti