An extended Heckscher-Ohlin model with transaction costs and technological comparative advantage

Summary. This paper introduces technological differences and transaction costs into the Heckscher-Ohlin (HO) model and examines the HO theorem, factor price equalization theorem, the Stolper-Samuelson theorem and the Rybczynski theorem. It shows that the HO theorem can be refined, and that the factor price equalisation theorem, the Stolper-Samuelson Theorem and the Rybczynski theorem do not always hold. It also shows that transaction costs play an important role in determining the equilibrium trade pattern.Received: 26 February 2001, Revised: 27 May 2003, JEL Classification Numbers: F10, F11. Correspondence to: Wenli ChengWe are grateful for comments from the anonymous referee, Hugo Sonnenschein, Guangzhen Sun and participants of the seminar on this paper at University of Washington.