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Heckscher-Ohlin Theory or the Modern Trade Theory: How the Overall Trade Characterizes at the Global Level?

Author

Listed:
  • Mohd Hussain Kunroo

    (Indian Institute of Management (IIM) Sirmaur)

  • Imran Ahmad

    (Office of the Economic Adviser, Ministry of Commerce and Industry, Government of India)

Abstract

This paper has two objectives: to locate the global trade pattern and to compute the export potential of world economies. Considering the maximum number of countries and maintaining a good representative sample of the overall international trade, an empirical examination is conducted by utilizing the trade complementary index and the per-capita income variable in the standard gravity model. The main aim is to determine which of the two theoretical frameworks―either the Heckscher-Ohlin theory, which is based on factor endowments or the Modern Trade theory of Krugman-Helpman and Linder, based on the intra-industry trade―is explaining the overall global trade flows. The estimated results support the factor endowments trade theory. In other words, the observed trade patterns conform to the Heckscher-Ohlin theory of trade over intra-industry Modern trade theories. The inference drawn is based on the significantly positive coefficient of the trade complementarity index and the absolute differenced PCI variable. Furthermore, as far as export potential is concerned, there exists a vast scope for the export potential across economies. These countries can exploit the existing export potential through trade cooperation and integration at the regional and the bilateral level.

Suggested Citation

  • Mohd Hussain Kunroo & Imran Ahmad, 2023. "Heckscher-Ohlin Theory or the Modern Trade Theory: How the Overall Trade Characterizes at the Global Level?," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 21(1), pages 151-174, March.
    • Handle: RePEc:spr:jqecon:v:21:y:2023:i:1:d:10.1007_s40953-022-00330-x
    DOI: 10.1007/s40953-022-00330-x
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    References listed on IDEAS

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    More about this item

    Keywords

    Trade pattern; Intra-industry trade; Gravity model; Trade complementarity index; Heckscher-Ohlin theory; Krugman-Helpman theory; Linder hypothesis; Export potential;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration

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