Conclusions

Abstract

Based on the HOV model in its value version, the first part of this study developed theoretical models for explaining a country’s pattern of trade in a multi-factor, multi-good, multi-country framework. Contrasting with previous studies, these models allow for cross-country differences in technology and factor prices, and for departures from some of the assumptions of the original HO theory, such as increasing returns and product differentiation or internationally mobile capital. They also allow for intermediate production, while preserving most of the strong assumptions of the HO theory, such as internationally immobile input factors (other than capital), identical and homothetic preferences in consumption, free trade, no transportation costs, and factor-market and world-commodity clearing. The presence of economies of scale and product differentiation, and internationally mobile capital renders the assumptions of the models slightly more realistic, while the standard model is more general. The presence of product differentiation and economies of scale internal to the firm allows us to write separate factor content equations for exports and imports of the differentiated products.