Comparative advantage, regional specialization and income distribution: The case of Austria in perspective

Realization of comparative advantage (David Ricardo) raises issues of income distribution that emerge when specialization gains are achieved. While the Stolper-Samuelson theorem 'predicts' that because of trade liberalization in 'rich countries' like Austria or Germany wages may fall and real incomes of capital owners might increase, some doubts are raised whether continuous cuts in relative wages - as a response to specialization gains achieved in the process of trade liberalization - are an adequate policy response. The case of Austria illustrates the related issues. This case it not representative for the EU at large, a similar result can he expected for a few other EU countries, e.g. Germany. Other EU member states pursue different policies. (C) 2008 Society for Policy Modeling. Published by Elsevier Inc. All rights reserved.