Revealed Preference Tests of the Stolper-Samuelson Theorem

Abstract

This paper conducts revealed preference tests of the Stolper-Samuelson theorem. If the Stolper-Samuelson theorem holds, one would expect to find a country’s relatively scarce factor of production (in this case labor) harmed from trade liberalization and thus opposing trade liberalization. The reverse would be true for its relatively abundant factor of production (in this case capital). Therefore, this paper examines representations made before the Canadian House of Commons committee studying the Canadian-United States Free Trade Agreement. Assuming representations coincide with the self-interest of the presenters, the effects of trade liberalization on factor returns are inferred. It finds strong support for the proposition that labor behaves as the Stolper-Samuelson theorem would predict and qualified support for capital behaving as the Stolper Samuelson theorem would predict.

Keywords: Factor returns, Stolper-Samuelson, trade

JEL Classification: F1, D7