The Shortcomings of the Orthodox Theory

  • H. Peter Gray


The classical theory of international trade postulates different production functions for identical goods in different countries and attributes comparative advantage to these differences. Its premises were under attack before the factor-proportions theory was revealed in its full maturity in 1933. Both Graham and Williams made major critiques but neither succeeded in dethroning the reigning concepts.1 Ohlin’s expansion of Heckscher’s seminal paper presented a viable alternative to the classical model.2 Since its appearance, the factor-proportions model has held centre stage despite the clear superiority of the classical model as a basis for empirical work. There have, however, been many critiques of the factor-proportions theory and these critiques have been appearing with increasing frequency. The critiques derive, in part, from the empirical shortcomings of the theory, in part from the clear lack of relevance of the theory to some major post-World War Two phenomena and, in part, from the vulnerability of some of its premises.3 Not the least important target for criticism has been the increasingly elegant formulations of the factor-proportions theory. These formulations have progressively removed the central core of international trade theory away from Heckscher’s concepts and the literary version of Ohlin’s model and toward the more restrictive Casselian version.4


Production Function International Trade Transportation Cost Core Theory International Trade Theory 
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  1. 22.
    R. N. Batra and F. R. Casas, ‘Intermediate Products and the Pure Theory of International Trade: A Neo-Heckscher—Ohlin Framework,’ American Economic Review LXIII (June 1973), pp. 297–311.Google Scholar
  2. 25.
    Staffan Burenstam Linder, An Essay on Trade and Transformation (Stockholm: Almqvist and Wiksell, 1961), especially pp. 87–109;Google Scholar
  3. reprinted in part in Robert E. Baldwin and J. David Richardson, International Trade and Finance: Readings ( Boston: Little, Brown and Company, 1974 ), pp. 43–54.Google Scholar
  4. 26.
    See Bela Balassa, ‘Tariff Reductions and Trade in Manufactures Among the Industrial Countries,’ American Economic Review LVI (June 1966) pp. 466–73Google Scholar
  5. and Herbert G. Grubel, ‘Intra-Industry Specialization and the Pattern of Trade,’ The Canadian Journal of Economics and Political Science 33 (August 1967), pp. 374–88.CrossRefGoogle Scholar
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    I. B. Kravis, ‘Availability and Other Influences on the Composition of Trade,’ Journal of Political Economy 64 (April 1956), pp. 143–55.CrossRefGoogle Scholar
  7. 31.
    Jagdish Bhagwati, ‘The Pure Theory of International Trade: A Survey,’ Economic Journal LXXIV (March 1964), pp. 1–84 gives a good summary of Kravis’ argument and some insightful extensions.CrossRefGoogle Scholar
  8. 32.
    Wassily Leontief, ‘Domestic Production and Foreign Trade; the American Capital Position Re-examined,’ in R. E. Caves and H. G. Johnson (eds.), Readings in International Economics ( Homewood, Ill.: Richard D. Irwin, 1968 ), pp. 503–27;Google Scholar
  9. and W. W. Leontief, ‘Factor Proportions and the Structure of American Trade,’ op. cit. pp. 395–98 (computation D).Google Scholar

Copyright information

© H. Peter Gray 1976

Authors and Affiliations

  • H. Peter Gray
    • 1
  1. 1.Belle MeadUSA

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