Rehabilitating the Factor-Proportions Hypothesis ()
ABSTRACT
The Heckscher-Ohlin theory of international trade remains an enigma.
Despite being falsified on numerous counts [1] [2], it persists as the core
theory of international trade, found both in undergraduate and graduate
textbooks, not to mention in much research and policy. However, while it has
failed to be confirmed by the data, the notion that factor proportions motivate
trade, whether at the regional or national level, continues to hold sway. This
paper is an attempt at rehabilitating the factor proportions hypothesis (FPH)
as a theory of interregional and international trade. An alternative
formalization, based on evolutionary principles (endogenous technology, mobile
capital and labor), is presented and is used to rationalize the paradoxical
findings of HOH empirical tests. The predictions are then tested using a
variety of techniques. It concludes by examining the policy implications.
Share and Cite:
Beaudreau, B. (2015) Rehabilitating the Factor-Proportions Hypothesis.
Modern Economy,
6, 436-457. doi:
10.4236/me.2015.64042.
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