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Heckscher-Ohlin Trade, Leontief Trade, and Factor Conversion Trade When Countries Have Different Technologies

Guo, Baoping (2015): Heckscher-Ohlin Trade, Leontief Trade, and Factor Conversion Trade When Countries Have Different Technologies.

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Abstract

Kurokawa (2011), Takahashi (2004), Simpson (2016), and Kozo and Yoshinori (2017) have demonstrated the evidence of the factor intensity reversals (FIRs) in their empirical studies. This is another big challenge for international economics after Leontief paradox. This paper demonstrates that there are three trade types in international trade: the Heckscher-Ohlin trade, the Leontief trade, and the conversion trade, by using the 2×2×2 Trefler model. The conversion trade occurs when the model structure is with FIRs. The conversion trade is one that one country exports the commodity that uses its scarce factor intensively; another country exports the commodity that uses its abundant factor intensively. The conversion trade actually is the trade with factor content reversal , i.e. that if one country exports the services of capital and imports the services of labor, another country does the same. This study demonstrates that both the Leontief trade and the conversion trade are rooted in the Heckscher-Ohlin theories. The three trade types are under the generalized trade pattern that each country exports the commodity that uses its effective (virtual) abundant factor intensively and imports the commodity that uses its effective (virtual) scarce factor intensively.

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