Resource Endowments and Anomalies in International Trade Patterns: A Study of India, Japan and the U.S.A.

Abstract

The pure theory of international trade, in its most elementary form, is predicated on differences in resource endowments between different countries. It has been argued, most notably by the Swedish economist Bertil Ohlin, that the existence of such inter-country differences in resource endowments explain the comparative cost differences between the factors of production, and hence the prevalence of trade. In the mid 1950's though, W. W. Leontiev's findings with regard to the nature of U.S. trade gave rise to considerable controversy because of the paradoxical nature of the findings. In this paper, the findings of Leontiev are examined and the seemingly anomalous trade patterns of India and Japan are also explored. It will be seen that while the Heckscher-Ohlin Theorem (to be explained) still holds, resource endowments in themselves are never a complete explanation of trade patterns.