Trade liberalization and factor prices: An application to the U.S. manufacturing sector

Abstract

The effects of a trade policy on the prices of productive factors have important policy implications, particularly with regard to trade liberalization and protection. This paper examines the empirical evidence of the Stolper-Samuelson theorem for 16 major U.S. manufacturing industries. The theorem asserts that international trade reduces the prices of scarce productive factors and hence decreases their shares of income. The elasticities of prices of finished goods with respect to factor prices are estimated and then rearranged in the form of the row stochastic P-matrix in accordance with the proposition of Uekawa. The inverse of this matrix seems to confirm the weak version of the Stolper-Samuelson theorem.