New Trade Theories and Developing Countries

Abstract

Conventional wisdom has it that international trade is driven by inter-country differences in factor endowments or factor productivity. The former is formalised in the celebrated Heckscher—Ohlin—Samuelson Theorem (HOS), the latter in the equally important (but less influential) Ricardian Theorem. Although these theorems are often discussed in general terms, one senses from the literature a presumption that they are particularly applicable to explaining the trade flows of less developed countries (LDCs). It can be readily seen why this presumption emerges. After all, many LDCs depend heavily on exports of primary products which tend to be natural resource-based. Moreover, some empirical evidence suggests that the trade flows of LDCs, particularly north—south trade flows, are driven by differences in factor endowments or factor productivity, (see for instance Learner, 1981).