Reswitching, Primary Inputs and the Heckscher-Ohlin-Samuelson Theory of Trade

Abstract

Over recent decades the theory of trade has been dominated by the Heckscher-Ohlin-Samuelson (H-O-S) analysis which, in its most common form, deals with a two-country, two-commodity, two-factor model of trade. Since the H-O-S analysis is an application of standard general equilibrium analysis to questions concerning trade, it is to be expected that it might be affected by the recent developments in capital theory, and it can be shown (see Essay 5 below) that if the two ‘factors’ are taken to be labour and ‘value capital’ then the analysis does indeed meet difficulties. The object of the present essay is to show that the H-OS theory also meets difficulties if the two factors are taken to be labour and land, the role of time being recognised by the inclusion in the model of a positive rate of profit (interest). It must, of course, be noted carefully that some writers might wish to argue that the existence of a positive profit rate implies the existence of a third factor, capital, and that the model analysed below therefore has two commodities and three factors. Since it is well known that difficulties arise for the H-O-S analysis when there are more factors than commodities (Samuelson [4]) such a writer might then argue that our analysis is redundant. Our standpoint is that the following analysis is intended for those who, like ourselves, do not regard capital (or time) as a ‘factor’ comparable to land and labour.¹

This essay was first published in the Journal of International Economics, 1977. We should like to thank Sergio Parrinello and R. B. Rowthorn for helpful comments on an earlier version.