Comparative Advantage in International Trade: Theory
Based on the Heckscher-Ohlin-Vanek (H-O-V) theory, the paper develops theoretical models that lead to estimating cross-industry equations in a proper way, when allowing for departures from some of the strong assumptions of the H-O theory, such as perfect competition, equal factor unit requirements and factor prices across countries, and internationally immobile factors. Based on these theoretical models we try to address properly the issue of empirical estimation of the H-O-V equations, as well as to reformulate the rank hypotheses that allow for direct tests of the H-O-V theory when some of the assumptions of the original factor-proportions theory are relaxed.
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