According to the Stolper-Samuelson Theorem, who benefits from free trade in a country that is abundant in unskilled labor and scarce in capital?

Understand the Problem

The question is asking about the implications of the Stolper-Samuelson Theorem in the context of free trade and its effect on different economic classes (labor and capital) in a country with abundant unskilled labor and scarce capital.

More Information

According to the Stolper-Samuelson theorem, in a country that is abundant in unskilled labor and scarce in capital, the returns to unskilled labor will increase with free trade. This theorem connects to the Heckscher-Ohlin model, which suggests that countries will export goods that intensively use their abundant factors of production.

Tips

A common mistake is misidentifying which factor of production (labor or capital) is relatively abundant in a given country. Another mistake is confusing the impact on the scarce factor, which tends to lose out in terms of returns.

Sources

• Stolper-Samuelson theorem - Wikipedia - en.wikipedia.org
• International Trade The Heckscher-Ohlin Framework, Part II I. Recap - eml.berkeley.edu