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

Kazuhiro Kurose and Naoki Yoshihara ()

No 686, Discussion Paper Series from Institute of Economic Research, Hitotsubashi University

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.

Keywords: factor price equalisation; global univalence; capital as a bundle of reproducible commodities; reswitching of techniques; capital reversing (search for similar items in EconPapers)
JEL-codes: B51 D33 F11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hme, nep-int, nep-ore and nep-pke
Date: 2018-10
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