Page 220 - Global Political Economy_Understanding The International Economic Order

THE TRADI NG SYS TEM
(2) Trade will benefit the owners oflocally abundant factors and
harm owners ofthe scarce factors. Thus, although all countries
will benefit in absolute terms, there will be important distributive
consequences that will favor either capital or labor in trading
countries (Stopler-Samuelson Theorem).
(3) Trade in factors (capital or labor) and trade in goods will have
the same effect and can fully substitute for one another (Mundell
equivalency).
(4) Under certain circumstances, trade in goods will over time equal-
ize the return (wages to labor and profits to capital) for each
factor of production (Factor-Price Equalization Theorem).
The basic problem with the H-O model or theory is that actual
trading patterns frequently differ from what the theory predicts. A
notable example is found in intraindustry trade among countries with
similar factor endowments. Indeed, most trade among industrialized
countries takes place largely in the same product sectors; for example,
the United States both exports to and imports from other industrial-
ized countries. As a consequence of the efforts by economists to ex-
plain this and other departures from the H-O theory, the concept
ofcomparative advantage has been made increasingly elastic. Some
economists regard actual trade patterns as resulting from many fac-
tors other than natural endowments, factors including historical acci-
dents, government policies, and cumulative causation. Moreover, the
standard H-O theory itselfhas been modified and expanded to in-
clude such important factors as human capital (skilled labor), “learn-
ing by doing,” technological innovation, and especially economies of
scale. Revisions have so transformed the original H-O model that
some economists now argue that the theory ofinternational trade is
not much more than an eclectic enumeration ofthe many factors that
determine comparative advantage and trade flows.
However, it is very difficult to incorporate these newly recognized
factors into a formal model, and because there is no satisfactory alter-
native model, economists continue to support the standard H-O the-
ory oftrade based on factor endowments. As Richard Caves and
Ronald Jones have argued, the Heckscher-Ohlin theory, with its em-
phasis on factor endowments, is still largely valid. 17 Moreover, as
economists argue, national specialization and the benefits ofa territo-
rial division oflabor remain valid concepts that are ofoverwhelming
17
Richard Caves and Ronald Jones, quoted in David B. Yoffie and Benjamin Gomes-
Casseres, International Trade and Competition: Cases and Notes in Strategy and Man-
agement, 2d ed. (New York: McGraw-Hill, 1994), 8.
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