Question

Stolper-Samuelson theorem

In the Heckscher-Ohlin model, suppose a relatively capital-abundant country opens to trade. Who gains? Check all that apply.

Multiple answers:You can select more than one option

A:

Workers

B:

Owners of capital

C:

The country as a whole

Answer 1

Since the Stolper–Samuelson theorem is a fundamental theorem in Heckscher–Ohlin trade theory. It shows the relationship between relative prices of output and relative factor rewards—specifically, real wages and real returns to capital.

A country has comparative advantage in the production of that good in which it has lower opportunity cost.

Hence it can be said that if a country has lower opportunity cost in producing a good, then this nation has a comparative advantage in the production of that good.

Therefore in the Heckscher-Ohlin model, suppose a relatively capital-abundant country opens to trade, then capital owner will be most benefited but since capital owner is part of the country, therefore the gain of trade will be for the country as a whole as well because the gain will be distributed in the country in many from. For example the economic activity in the country will increase and government revenue will also increases.

Hence option B and C are the correct answer.