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Trade Theory, Analytical Models and Development

Essays in Honour of Peter Lloyd, Volume I

Edited by Sisira Jayasuriya

Trade Theory, Analytical Models and Development, comprises 11 essays offering new contributions on the following topics: trade and wages; factor endowments, factor mobility and political economy of trade; optimality of tariffs; measurement of welfare; customs union theory; endogenous mergers and tariffs; intra-industry trade; state trading enterprises and trade liberalisation; general equilibrium effects of e-Commerce, and trade; economic growth with production and consumption externalities; and environmental pollution and resource degradation.
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Chapter 2: The factor scarcity (abundance) hypothesis, factor mobility, and the political economy of international trade policy

A.G. Schweinberger


A.G. Schweinberger* 1. INTRODUCTION One of the most widely known and apparently accepted insights originating from the Heckscher–Ohlin model is that owners of relatively scarce factors lose and owners of relatively abundant factors gain from free international goods trade (see, for example, Dixit and Norman, 1980; Woodland, 1982; Hillman, 1989; and Freeman, 1995) or a recent book on the effects of globalization by Rodrick (1997). We refer to this insight as the factor scarcity (abundance) hypothesis. Initially the factor scarcity (abundance) hypothesis was confined to the 2 ϫ 2 ϫ 2 Heckscher–Ohlin model but in the 1970s and 1980s the Heckscher–Ohlin model and theorem were generalized to n dimensions (see, for example, Ethier, 1984). These generalizations are undoubtedly worthwhile but they also have one major drawback: they invariably make use of the property of factor price equalization, see again Ethier (1984). This entails that normally the said method of analysis cannot readily be extended to applications of the factor scarcity (abundance) hypothesis to a sector-specific factor model. It now seems to be generally agreed that applications of the sector-specific factor model have important political-economy messages. Even fairly recent publications make extensive use of it (see, for example, Grossman and Helpman, 1994). It therefore seems rather surprising that to date no attempt has been made to apply the factor scarcity (abundance) hypothesis to a general sector-specific factor model and relate the results to one of the most fundamental issues raised in international political economy: the...

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