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The Heckscher—Ohlin—Samuelson Trade Theory and the Cambridge Capital Controversies: On the Validity of Factor Price Equalisation Theorem

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  • Kurose, Kazuhiro
  • Yoshihara, Naoki

Abstract

This paper examines the validity of the factor price equalisation theorem (FPET) in relation to capital theory. First, it presents a survey of the literature on Heckscher—Ohlin—Samuelson (HOS) models that treat capital as a primary factor, beginning with Samuelson (1953). In addition, by consulting the Cambridge capital controversies, this paper observes that the validity of the FPET relies crucially on this setting. It does no longer hold whenever capital is assumed to be a bundle of reproducible commodities. This paper also refers to the recent literature on the dynamic HOS trade theory and argues that such studies ignore the difficulties posed by the capital controversies. It thereby concludes that the FPET holds even when capital is modelled as a reproducible factor. In conclusion, the paper suggests the necessity of reconstructing basic theories of international trade without relying on the FPET.

Suggested Citation

  • Kurose, Kazuhiro & Yoshihara, Naoki, 2018. "The Heckscher—Ohlin—Samuelson Trade Theory and the Cambridge Capital Controversies: On the Validity of Factor Price Equalisation Theorem," Discussion Paper Series 686, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:hituec:686
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    More about this item

    Keywords

    factor price equalisation; global univalence; capital as a bundle of reproducible commodities; reswitching of techniques; capital reversing;
    All these keywords.

    JEL classification:

    • B51 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Socialist; Marxian; Sraffian
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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