Differences In Relative Factor Endowments Research Articles

A Case Study of Effects of Developing Country Integration on Trade Flows: The Andean Pact

Cooperation among developing countries in the form of economic integration has received increased attention as a development strategy. About one-half of all developing countries currently participate in integration schemes.1 Yet there have been few attempts to measure the effects on trade flows associated with these integration efforts.2 The scarcity of such studies stems from a dissatisfaction on the part of some investigators regarding the applicability to developing countries of evaluative criteria formulated by Viner to assess world-wide allocative gains from industrial nation integration schemes.3 A lack of interest in the traditional method of evaluating integration efforts is also motivated by the expectation that static gains will be small or nonexistent in developing country integration schemes, where even collectively markets are often small and members display little differences in relative factor endowments.

The Generalized Gravity Equation, Monopolistic Competition, and the Factor-Proportions Theory in International Trade

A general equilibrium model of world trade with two differentiated-product industries and two factors is developed to illustrate how the gravity equation, including exporter and importer populations, as well as incomes, fits with the Heckscher-Ohlin model of interindustry trade and the Helpman-Krugman-Markusen models of intraindustry trade. The study extends the microeconomic foundations for a generalized gravity equation in Bergstrand (1985) to incorporate relative factor-endowment differences and nonhomothetic tastes. Empirical estimates of this generalized gravity equation for single-digit Standard Industrial Trade Classification industry groups yield plausible inferences of their capital-labor intensities. Copyright 1989 by MIT Press.

A Simple Theory of International Trade with Multinational Corporations

Using the idea that firm-specific assets associated with marketing, management, and product-specific R & D can be used to service production plants in countries other than the country in which these inputs are employed, I develop a simple general equilibrium model of international trade in which the location of plants in a differentiated product industry is a decision variable. The model is then used to derive predictions of trade pattern, volumes of trade, the share of intra-industry trade, and the share of intrafirm trade as functions of relative country size and differences in relative factor endowments.

Factor movements and commodity trade as complements

Several models are presented in which factor mobility leads to an increase in the volume of world trade. The models share the common characteristic that the basis for trade is something other than differences in relative factor endowments. These alternative bases for trade include returns to scale, imperfect competition, production and factor taxes, and differences in production technology. Taken together, the models suggest a more general idea: the widely held notion that trade in goods and factors are substitutes is in fact a rather special result which is a general characteristic only of factor proportions models.