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Patterns of Trade and Growth Across Cones

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  • Deardorff, A.V.

Abstract

This paper examines the implications of the Heckscher-Ohlin (HO) Model for the patterns of production and trade that will emerge as a country grows. It focuses primarily on world equilibria that include two or more cones of diversification. Starting with the textbook model of two factors and two goods, growth paths for production and trade are derived in terms of a country's capital-labor ratio relative to that of the world. With additional goods and countries, multiple cones create a ladder of comparative advantage that a country will climb as it accumulates capital relative to the world. With additional factors as well, more complicated patterns can emerge. In a three-factor model based on Krueger (1977), a country with fixed land, growing labor, and faster growing capital can first work its way down the ladder of comparative advantage before climbing back up. Using a graphical representation of a more general three-factor model due to Leamer (1987), cones of diversification with large numbers of goods take the form of polygons that a growing country may pass through, then cross between. In all cases, the lesson of the HO Model is that growth causes repeated and extreme changes in patterns of specialization and trade over time.

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Bibliographic Info

Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 443.

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Length: 42 pages
Date of creation: 1999
Date of revision:
Handle: RePEc:mie:wpaper:443

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Postal: ANN ARBOR MICHIGAN 48109
Web page: http://www.fordschool.umich.edu/rsie/
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Related research

Keywords: INTERNATIONAL TRADE ; ECONOMIC GROWTH;

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Cited by:
  1. Batista, Catia & Potin, Jacques, 2013. "Stages of Diversification in a Neoclassical World," IZA Discussion Papers 7765, Institute for the Study of Labor (IZA).
  2. Andrea Brasili & Paolo Epifani & Rodolfo Helg, 1999. "On the dynamics of trade patterns," LIUC Papers in Economics 61, Cattaneo University (LIUC).
  3. Alan Deardorff, 2001. "Developing country growth and developed country response," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 10(4), pages 373-392.
  4. Catia Batista & Jacques Potin, 2007. "Stages of diversification and specialization in an Heckscher-Ohlin world, 1976-2000," Economics Series Working Papers 356, University of Oxford, Department of Economics.

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