Introduction

  • Winston W. Chang
  • Seiichi Katayama

Abstract

The orthodox theories of trade were developed under the two key assumptions of perfect competition and constant returns to scale, and the main trade determinants were found to be differences in technologies and differences in factor endowments between countries. The classical Ricardian theory assumes differences in technologies and demonstrates that a country will export a good whose production is relatively efficient, gaining a comparative advantage. The neoclassical Heckscher—Ohlin theory, on the other hand, assumes that countries have identical technologies but different factor endowments, and demonstrates that a capital-abundant country will export a good whose production is relatively capital intensive. The orthodox theories have thus successfully explained why countries with different technologies or factor endowments exchange goods produced in different industries. They are, however, hard pressed to explain the voluminous intra-industry trade between countries with similar endowments. Such intra-industry trade has been documented by Grubel and Lloyd (1975) as a major growth component in the postwar world trade.

Keywords

Migration Transportation Income Nash Nism 

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Copyright information

© Springer Science+Business Media New York 1995

Authors and Affiliations

  • Winston W. Chang
  • Seiichi Katayama

There are no affiliations available

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