Munich Personal RePEc Archive

World Equalized Factor Price and Integrated World Trade Space

Guo, Baoping (2018): World Equalized Factor Price and Integrated World Trade Space.

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Abstract

This study derived a general equilibrium for the Heckscher-Ohlin model at the context of higher dimensions. The equalized factor price at the equilibrium is the Dixit-Norman price, i.e. that the world price will remain the same when allocations of factor endowments change within the IWE box . The study explored a way to show the legacy of comparative advantages on the Heckscher-Ohlin model and demonstrated that the equalized factor price and world commodity price at the equilibrium ensured that the countries participating free trade gain from trade. The solution analytically addresses the Heckscher-Ohlin theorem with trade volume, the Factor-Price Equalization theorem with price solution, and comparative advantages with gains from trade. It shows the hided important logic in the IWE and the Heckscher-Ohlin model as that world factor endowments determine world price.

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