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

Mohd Hussain Kunroo () and Imran Ahmad ()
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Mohd Hussain Kunroo: Indian Institute of Management (IIM) Sirmaur
Imran Ahmad: Office of the Economic Adviser, Ministry of Commerce and Industry, Government of India

Journal of Quantitative Economics, 2023, vol. 21, issue 1, No 5, 174 pages

Abstract: 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.

Keywords: Trade pattern; Intra-industry trade; Gravity model; Trade complementarity index; Heckscher-Ohlin theory; Krugman-Helpman theory; Linder hypothesis; Export potential (search for similar items in EconPapers)
JEL-codes: C23 F11 F13 F14 F15 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s40953-022-00330-x

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