Vertical Specialization Between Developed and Developing Countries: A Modification of the Heckscher-Ohlin Model

This article analyzes the implications for the Heckscher-Ohlin model of a split of the production of a final good into the intermediate good production and the further working of the good. Through this split, the different parts of the production process can be matched to fit the factor endowment of each country. The new and quite central distinction from earlier contributions is that we take into account an exactly defined need of intermediate goods according to a certain kind of specification in every link of the production process. We show that the potential trade pattern thereby becomes much more varied and significantly distinct from the traditional Heckscher-Ohlin model. The input-output ratio of labor increases relatively to the input-output ratio of capital in the capital-abundant country's production of the capital-intensive split product and thereby the Rybczynski theorem is reinforced.     

The effect of variation in foreign production on domestic factor prices

In this article, the effects of random versus nonrandom foreign production on the average commodity price ratio and on average domestic factor prices are examined within the context of the Heckscher-Ohlin framework. It is shown that the average price ratio is changed when production is random. Thus, the condition derived by Murray C. Kemp and Chulsoon Khang for expected factor prices to be changed when the commodity price ratio is random, must be altered in accordance with the Stolper-Samuelson theorem.     

Technology, endowments, and the factor content of bilateral trade

We derive testable restrictions relating the factor content of bilateral trade to bilateral differences in technology and endowments. This departs from the Heckscher-Ohlin-Vanek theorem which compares the factor content of net trade with factor abundance. We test the theoretical restrictions using a unique dataset that covers 41 developed and developing countries with disparate endowments and technology. We find evidence supporting the predictions. In addition: (1) The factor content predictions perform best for country pairs with larger endowment differences, and (2) for trade between capital-abundant countries, Ricardian international technology differences matter more than Heckscher-Ohlin factor endowment differences.     

A synthesis of the Heckscher-Ohlin and the neoclassical models of international trade

In this paper we provide a synthesis between the neoclassical and the Heckscher-Ohlin models of international trade by developing the properties of a two-sector, three-factor model. The neoclassical model, where one or more factors are specific to one or both industries, and the Heckscher-Ohlin model, where two (or all factors) are nonspecific, then can be analyzed as special cases of our model. The theorems by Rybczynski, Stolper and Samuelson, Jones and Chipman, among others, are reexamined in terms of our generalized model.     

New goods and the skill premium

In a two-cone Heckscher-Ohlin model with CES preferences and a continuum of goods, new northern goods increase the northern skill premium if they are skilled-labor intensive, and may increase the premium if they are unskilled-labor intensive. Thus, the introduction of new goods into US technology could have done more to increase the US skill premium than a closed-economy model would predict. I also explore how new northern goods affect the southern skill premium and what happens if they generate preference-induced reversals across existing goods. I develop a two-step solution method that simplifies comparative static analyses in the two-cone Heckscher-Ohlin model.     

基于H-O模型的外生技术进步与国际贸易分析

在H-O模型的基础上通过几何分析和代数证明,本文分别阐述了在小国情形和大国情形下,出口部门与进口部门的希克斯中性技术进步对一国的生产模式、贸易模式、要素报酬、要素密集度和社会福利的影响。     

Portfolio autarky: A welfare analysis

A variant of the standard Heckscher-Ohlin model, a model of a two-country world economy populated by Samuelsonian overlapping generations, is presented and then used in a welfare analysis of two international economic policy regimes: A laissez-faire regime, characterized by free trade in goods and complete freedom of portfolio choice; and a portfolio autarky regime, characterized by free trade in goods and a prohibition, applicable world-wide, on the ownership of foreign assets (land). Using a ‘growth model’ version of the traditional welfare criterion, it is shown that the laissez-faire regime is optimal and that the portfolio autarky regime is not.     

重构比较优势理论的微观基础:一般均衡分析

基于消费者与厂商的最优决策,通过将外生技术差别纳入H-O模型进行一般均衡分析,重构比较优势理论的微观基础。研究发现,国际分工取决于要素禀赋与技术差别两种因素的综合作用,劳动力相对丰裕的国家若生产资本密集型商品的技术优势超过禀赋劣势,反而可以出口资本密集型商品。为了避免陷入"比较利益陷阱",中国应采取有效措施加快技术进步,突破传统比较优势分工格局。     

The theorems of international trade in time-phased economies

Numerous recent studies conclude that the basic results of the Heckscher-Ohlin theory are vitiated by ‘capital’: a collection of heterogeneous produced means of production. where production takes time and the interest rate is positive. This paper examines the sensitivity of the four basic theorems to the presence of capital and concludes that all four are impervious. The pessimistic conclusions permeating the literature are consequently due not to the nature of capital but rather to other departures from the two-by-two neoclassical model, departures that can be handled fully in a timeless context and, for the most part, have been.     

The core and periphery of the world economy

This paper reviews three models of foreign trade, including the Heckscher-Ohlin model, the new trade theory based on increasing returns to scale, and the model of economic geography and trade with agglomeration effects. It demonstrates that gravity models perform relatively well for differentiated and non-differentiated products. This result supports Hummels' and Levinsohn's () critique of the new theory foundation of the gravity equation. Furthermore, the bilateral trade relations of peripheral countries are often identified as outliers. This pattern of outliers is consistent with the model of geography and trade.     

Multiple cones, factor price differences and the factor content of trade

This paper examines the theoretical predictions of the multi-cone Heckscher-Ohlin model and the empirical evidence for it. I extend Helpman (1984)by identifying additional restrictions that characterize the free trade equilibrium. I illustrate that the complete set of restrictions are the building blocks of a multi-cone factor content specification which is the factor content dual to Alan Deardorff's (1979)well-known chain of comparative advantage goods prediction. The theoretical analysis implies that the existing tests of Helpman are incomplete. Applying the complete set of restrictions to Choi and Krishna's data set of 8 OECD countries, I find limited empirical support. This is compatible with previous studies suggesting that OECD countries do not occupy different cones.     

International trade and unemployment: Theory and cross-national evidence

We present a model of trade and search-induced unemployment, where trade results from Heckscher-Ohlin (H-O) and/or Ricardian comparative advantage. Using cross-country data on trade policy, unemployment, and various controls, and controlling for endogeneity and measurement-error problems, we find fairly strong and robust evidence for the Ricardian prediction that unemployment and trade openness are negatively related. This effect dominates the positive H-O effect of trade openness on unemployment for capital-abundant countries, which turns negative for labor-abundant countries. Using panel data, we find an unemployment-increasing short-run impact of trade liberalization, followed by an unemployment-reducing effect leading to the new steady state.     

Variable labour supply and the pure theory of international trade : An empirical note

Previous writers have shown that variable labour supply may lead to perverse price output responses in the two-sector Heckscher-Ohlin model. This note attempts to assess the empirical likelihood, as opposed to the theoretical possibility, of such perversities. Using a range of plausible parameter values, we conclude that cases of a perverse price-output response consistent with dynamic stability of the model, though theoretically possible, are unlikely to arise in practice.     

Determinants of the structure of U.S. foreign trade, 1958–1976

The Heckscher-Ohlin model with three direct-factor inputs is borne out for U.S. net exports of manufactures in annual cross-section regressions for 1958–1976. The coefficient on unskilled labor became significantly more negative over the period, and there is evidence that the negative sign on physical capital may reflect the inclusion of natural resource industries. Further analysis based upon 1960 and 1970 census years suggests the importance as well of skill and technological variables. Calculations of the total factor requirements of U.S. trade uphold the Leontief paradox for 1958 but not for 1972.     

International trade in the presence of product differentiation,economies of scale and monopolistic competition: A Chamberlin-Heckscher-Ohlin approach

The paper presents a generalization of the Heckscher-Ohlin theory by admitting the existence of sectors in which there is monopolistic competition. The structure of preferences is based on Lancaster's work. It is shown without requiring homotheticity in the production of differentiated products that the intersectoral pattern of trade can be predicted from factor endowments but not from pre-trade commodity prices or factor rewards, except under special circumstances. It is also shown how the share of intra-industry trade is related to differences in income per capita and how the volume of trade depends on differences in income per capita and relative country-size Other empirical implications are also discussed.     

Endogenous trade policy through majority voting: an empirical investigation

The median-voter approach to trade policy determination (within a Heckscher-Ohlin framework) as in Mayer [Am. Econ. Rev. 74(5) (1984) 970] predicts that an increase in inequality, holding constant the economy’s overall relative endowments, raises trade barriers in capital-abundant economies and lowers them in capital-scarce economies. We find support for this prediction using cross-country data on inequality, capital-abundance and diverse measures of protection. We perform certain robustness checks that include controlling for the effects of political rights and schooling as well as using alternative datasets on factor endowments.     

Market access, economic geography and comparative advantage: an empirical test

Traditional neoclassical models of comparative advantage suggest that, all else equal, a country with idiosyncratically strong demand for a good will be an importer of that good. However, there is a contrary tradition that emphasizes the advantages of a large home market as a foundation for exports of a good. One recent formalization of this home market approach falls within what is termed the new economic geography. This paper integrates core models of Heckscher-Ohlin and Krugman [American Economic Review 70 (1980) 950] to investigate whether such home market effects matter empirically in manufacturing for a set of OECD countries. The evidence suggests that home market effects are important for a broad segment of OECD manufacturing.     

Efficiency wages,unemployment and international factor movements

"This paper examines the implications of unemployment resulting from efficiency wages for international factor movements in a standard Heckscher-Ohlin model where the relative size of the endowments of skilled and unskilled workers and the efficiency wage induced unemployment level in the unskilled labour market are simultaneously determined given the population, supply of capital and its distribution in the economy.... It is shown that the optimum labour inflow in the market with domestic distortion and the optimum capital inflow are always positive because they reduce the severity of distortion by raising employment and income for the residents. The income and employment of foreigners also increase. Under this situation the optimum labour or capital outflow on the other hand is always zero. These conclusions directly contradict the result obtained for international factor movements in the presence of exogenously determined unemployment."     

Ricardian-Heckscher-Ohlin comparative advantage: Theory and evidence

This paper derives and estimates a unified and tractable model of comparative advantage due to differences in both factor abundance and relative productivity differences across industries. It derives conditions under which ignoring one force for comparative advantage biases empirical tests of the other. I emphasize two empirical results: First, factor abundance- and relative productivity-based models each possesses explanatory power when nesting the other as an alternate hypothesis. Second, productivity differences across industries do not bias tests of the HO model in my sample. However, I find weak and mixed evidence that Heckscher-Ohlin forces can potentially bias tests of the Ricardian model.     

Sectoral adjustment costs and real exchange rate dynamics in a two-sector dependent economy

This paper develops a two-sector model in which intersectoral capital movements involve adjustment costs, expressed as capital lost in the transformation process. These costs have important consequences for the dynamics of capital accumulation and particularly for real exchange rate dynamics. Persistent deviations of the real exchange rate from its equilibrium are derived and for plausible values of the adjustment cost parameters are consistent with the observed degree of real exchange rate persistence. For low adjustment costs the dynamics are qualitatively similar to those of the standard Heckscher-Ohlin technology. For high adjustment costs, the model converges to the specific-factors model. Thus our framework includes these two standard models as polar extremes.