Some Extensions of the Simple HOS Model

Abstract

Several restrictive assumptions have been made in the chapters which present the HOS theorem as a logically true proposition. The prime focus has been the simple 2× 2×2 model; and the restrictive assumptions include internationally identical tastes and technology, and non-reversibility of factor intensities. Additionally, there are more than two goods, two factors and two countries in the real world. These assumptions clearly are unrealistic. The objective of this chapter is to explore the consequences if these assumptions are eschewed. It is not theoretically possible to do away with all the restrictive assumptions at the same time. Following the usual methodological procedure, the HOS model is examined by changing one assumption at a time. We consider specifically the consequences of internationally non-identical tastes, internationally non-identical technology, the reversal of factor intensities, many goods but two factors and two countries, many factors but two goods and two countries, and many countries but two goods and two factors.