Demand-Oriented Trade Equilibrium of Multi-National Economies

Abstract

This paper proposes a new international trade model, the demand-oriented trade model, to examine the interdependence and interaction of multi-country economies. It reflects realistic considerations in international trade practice: intermediate input, mobile factors across countries, intra-industry trade, and technology differences. The model emphasizes that taste-based internationalized demand plays an important role in the equilibrium of multi-national economies. This paper provides an approach to process demand-oriented trade analysis, which is a weak part in existing trade models. It introduces an account matrix of international trade to explore the production-trade structure of multi-national economies. The study demonstrates that there are five basic equilibriums in international trade and production: the factor resource constraint equilibrium; the intermediate input output equilibrium of production; the equilibrium of final goods transacted from the domestic supply to the internationalized demand; the price equilibrium; and the reciprocal equilibrium between the internationalized demand and the domestic factors. All of them, with reductions, exist both in the Ricardo model and in the Heckscher-Ohlin model. The higher dimension (k factors, n sectors, and m countries) model of this paper is an uneven model, which allow the number of factors to be not equal to the number of commodities. This paper also introduces the matrix of factor content of trade flows and a new measurement for factor abundance based on real imports and exports.