A more general Heckscher-Ohlin model

Adrian Wood

QEH Working Papers from Queen Elizabeth House, University of Oxford

Abstract: This paper formalises the enduring insights of Heckscher and Ohlin in a way that avoids the two least satisfactory features of the standard Heckscher-Ohlin-Samuelson model, namely that in an open economy factor prices are unaffected by endowments or demand and that outcomes vary drastically with the assumed numbers of goods and factors. Its main innovation is to recognise that (and describe simply how) trade costs diminish the economic impact of differences between places in relative production costs, a point relevant also to other models of trade. The Heckscher-Ohlin-Samuelson model is a special case of the more general model.

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