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On the Dynamics of the Heckscher-Ohlin Theory

 
Abstract
Over the last decades, large labor abundant countries, like China, have played a growing role in world trade. Using the factor proportions theory, this paper investigates the dynamic effects of economic growth consequent to international trade between countries with different factor proportions. I present a unified characterization of the equilibrium dynamics of Heckscher-Ohlin theory with initial factor endowments outside of the cone of diversification. The model can reconcile why countries experience non-monotonic changes in their pattern of specialization as they grow, why countries do not converge to the same steady state level of income, and why non-factor price equalizations might be the most likely outcome after all.



On the Dynamics of the Heckscher-Ohlin Theory