Intermediate Products and the Theory of International Trade: A Generalization of the Pure Intermediate Good Case

Abstract

Empirical studies of neoclassical, factorproportions trade theory have long recognized that hypotheses concerning relative factor intensity must be defined in terms of gross factor intensities (accounting for intensities of intermediate products) rather than simply in net factor-intensity terms (i.e., at the last stage of production only).' Nevertheless, development of the theory of international trade has generally neglected intermediate products. The justification for this convenience has in part been based on a study by Jaroslav Vanek which demonstrated that the introduction of interindustry flows in a two-good model did not affect the traditional theorems (Rybczynski, Stolper-Samuelson, or Heckscher-Ohlin) defined in net factor-intensity terms. However, in a recent study, Raveendra Batra and Francisco Casas demonstrated that the introduction of a pure intermediate commodity-one that is produced solely for use in the production of final goods-complicates the issue considerably. Thev show, in fact, that . . . most of the traditional trade theorems [defined in net terms] may not hold without additional provisions if such intermediate products are introduced in the model . . . (p. 297). The basic difference between the Batra-Casas model with intermediate products and Vanek's interindustry flow model is the possibility of a conflict between the net and gross factor-intensity ranking of final products.2 The conditions which Batra and Casas demonstrate are necessary in order to ensure a uniform ranking of final commodities according to net and gross factor intensitv were derived under the explicit assumption that the intermediate good is totally supplied from domestic production. The purpose of the present paper is to generalize the BatraCasas model to allow the intermediate good to be imported in some proportion.3 The analytical approach of the present paper is quite different from that taken by Batra and Casas, however. Here the problem is treated as a problem of ex post factor-intensity measurement, although the underlying model and necessary conditions to ensure its proper functioning are implicitly the same as described by Batra and Casas. In Section I a measure of gross factor intensity appropriate in an economy importing intermediate inputs is developed. In the following section this measure is applied to the Batra-Casas model, under alternative assumptions regarding the supply source of the intermediate good. It is shown that if some proportion of the intermediate good is imported, then net and gross factor-intensity rankings can be assured to be uniform if and only if-in addition to the

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 13 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.