Revolution and the Stolper-Samuelson Theorem

Economics

Speaker:Ben Zissimos , University of Bath
Date: Wednesday 30 November 2011
Time: 16.15
Location: STC/D

Further details

This paper presents a new theory of trade policy-making based on the possibility of social unrest, and determines the conditions under which it will apply. In a setting where democracy functions badly and property rights are poorly enforced, the paper shows that the Stolper-Samuelson theorem embodies a set of sufficient conditions for a revolution to occur. By pinpointing a conflict of interest between the ruling elite and workers over trade policy, the theorem implies that workers may have an incentive to mount a revolution. However, this also implies that the elite can use trade policy to make concessions to the workers and hence avert a revolution. In an extended framework, a set of sufficient conditions for revolution to occur are provided even when the Stolper-Samuelson theorem fails to hold. The theory is used to resolve three puzzles: why Britain repealed the Corn Laws; why food exporting countries may shut down exports in response to an increase in world food prices; why some middle-income countries have unilaterally liberalized trade.