International Trade Analysis and Stolper Samuelson Theorem

Running head: INTERNATIONAL TRADE
International Trade
Name of the Student
Name of the University
Course ID

INTERNATIONAL TRADE1
Table of Contents
Data Analysis...................................................................................................................................2
Visual representation of openness and inequality.......................................................................2
Correlation between openness and Gini Index............................................................................3
Stolper Samuelson theorem.........................................................................................................3
Technical Analysis...........................................................................................................................4
Answer a......................................................................................................................................5
Answer b......................................................................................................................................6
Answer c......................................................................................................................................7
Answer d......................................................................................................................................9
Answer e......................................................................................................................................9
References......................................................................................................................................10

INTERNATIONAL TRADE2
Data Analysis
Visual representation of openness and inequality
32.5 33 33.5 34 34.5 35 35.5 36
40.00%
42.00%
44.00%
46.00%
48.00%
50.00%
52.00%
54.00%
56.00%
58.00%
Italy
Gini Index
Openness
Figure 1: Openness and Gini Index for Italy
25 25.5 26 26.5 27 27.5 28 28.5 29 29.5
70.00%
75.00%
80.00%
85.00%
90.00%
95.00%
Sweden
Gini Index
Openness
Figure 2: Openness and Gini Index for Sweden

INTERNATIONAL TRADE3
Correlation between openness and Gini Index
Openness of a nation indicates involvement of a nation in free trade. Sum of export and
import represented as a percent of GDP is one measure of openness. The degree of inequality in
a nation is measured by Gini Index. Gini Index is also used as a proxy measure for skilled to
unskilled labor in the nation. The correlation between openness and Gini index in case of Italy is
0.26. The positive correlation implies a positive association with openness and inequality. That is
inequality increases with increase in openness and vice versa. The value of correlation however
is relatively smaller indicating a week relation between openness and inequality. For Sweden, the
estimated correlation coefficient between openness and Gini Index is 0.49. The positive
correlation indicates the association between openness and inequality is again positive. That
means inequality tends to increase as the country becomes more open (Feenstra 2015). The value
of correlation coefficient in case of Sweden is greater than that for Italy implying a moderate
association between openness and inequality. As Gini index also represents ratio of wage of
skilled to unskilled labor, the positive correlation implies as the country become more and more
open, the ratio of skilled to unskilled wage increases.
Stolper Samuelson theorem
The Stolper-Samuelson theorem is one of the fundamental theory derived from trade
theory as proposed by Heckscher and Ohlin. This theory explains how price of factor inputs is
related with relative price of the goods traded in the international market. According to the
theory with increase in relative price of a good, return to the factor that is intensively used in
producing the good increases. It is given that, Italy and Sweden both are skilled labor intensive
countries. Following Heckscher-Ohlin theory, both the countries therefore should specialize and
export skilled labor intensive goods (Vernon 2017). As the countries participate in international