The Determinants of World Steel Exports: An Empirical Study

Abstract

I NTERNATIONAL trade in commodities such as steel, synthetic rubbers, plastics, electronics, chemicals, and man-made fibers takes place primarily among the advanced, industrial countries of Western Europe, the United States, and Japan. The Heckscher-Ohlin model, which dominated the work of interna.tional economists from the twenties to the sixties, has proven inadequate to explain the trading patterns of these commodities. There appear to be two major reasons for this seemingly poor explanatory power: (1) the relative similarity of the factor endowments of the industrialized countries, and (2) the assumption of uniform global technology for each industry, an assumption which is untenable for a number of industries the products of which are traded internationally.' Two accepted theories which appear to be capable of explaining part of the trade which takes place among the advanced countries are the Doctrine of Comparative Costs and the scale economies theory. Both of these theories argue that trade takes place because of differences in unit production costs. One of the causes of different unit production costs is differences in the wages and productivity of workers. Unit production costs may also differ because total output of certain products in certain countries is such that the industries of these countries are larger than the industries of these countries are larger than the same industries in other countries. Since internal and external economies of sca.le are significant in a number of industries such as the steel industry, one would expect those countries with the larger industries to be able to produce commodities at lower unit production costs, ceteris paribus, than those countries whose industries are small, if the industry in question is subject to significant internal and/or external economies of scale.2 A third reason for differences in unit production costs is differences in the production, techniques used by industries producing a given array of products in different countries. Production techniques may differ because entrepreneurs in different countries may adopt innovations in an industry at different times. This is the essential argument put forward by the recently developed Posner Technological Gap Theory. The Posner Technological Gap Theory is among the most promising theoretical arguments put forward for the trading patterns of products traded principally among the advanced countries.3 Posner adopted all of the