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POLI 243 notes Feb 10

POLI 243 notes Feb 10 - POLI 243 IP of Econ...

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Feb 10, 2009 POLI 243: IP of Econ Relations *Remember to check webct for previous exams to get format – he will give us more details about essay questions on Thursday The Politics of Trade: The domestic consequences of specialization Extensions of the H-O Model - Stolper-Samuelson Theorem o Assumes factors may move from one application to another with ease, at no cost You will switch your production to the area that is the most profitable to you – you specialize (i.e. wine production); this model assumes that it is easy to make this switch and has no cost o Specialization thus occurs rapidly and fully Therefore the returns from the areas in which you specialize will rise, and returns from the area that you abandoned (stopped producing) will fall (since there is no more demand – you are importing them now) o Trade causes domestic prices to change; effect is passed on to returns earned by factors You use what you have lots of (e.g. capital in the U.S.), and import what you have less of (e.g. India has more labour, so can produce textiles, as opposed to the U.S.) The sectos which you start importing in will lose domestically – e.g. in the US capital-based wins, and labour-based loses o
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