The Missing Link: The Ricardian Approach to the Factor Endowments Theory of Trade

Abstract

This paper views all interpersonal trade as Ricardian, while all international trade reflects each country's factor endowment. The model provides the logical link betwe en Heckscher-Ohlin and Ricardo. The strength of the model is that it allows simpler and more robust theorems about trade, welfare, and fac tor payments. Factor price equalization holds universally and Stolper -Samuelson is not tied to the number of goods or factors. A key resul t is that the old Mill theorem that the small country gains all from trade is incorrect. Trade patterns with three factors and two goods a re completely characterized. Copyright 1988 by American Economic Association.

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