Rehabilitating Heckscher-Ohlin

Despite its long history, comparative advantage, the cornerstone of the study of international trade, remains a concept in search of a credible theory by which it should be understood, a theory that is consistent with the data, both historical and contemporary. Among the most celebrated approaches has been that of Eli Heckscher and Bertil Ohlin, focusing on factor proportions and factor intensities. While both appealing and intuitive, it however has been systematically rejected by the data. This book, which brings together the author’s previously published work, is an attempt to rehabilitate it by generalizing its breadth – specifically, by endogenizing technology and focusing on natural resource endowments within the context of a framework of vertical – as opposed to horizontal – trade – that is, trade in value added (TiVA). The result is an approach to trade that is intuitively appealing and consistent with the data, both past and present, making it amenable to the study of trade policy in general.