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A simulation of the Heckscher–Ohlin theorem

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  • Fukiharu, Toshitaka

Abstract

The Heckscher–Ohlin (H–O) theorem is one of the classical results in international trade theory. In the real world, however, this tendency has not been observed. Two restrictive assumptions are required for this theorem to hold. One is the identity of utility functions between the two trading countries, and the other relates to production functions. In this paper, simulations are conducted to identity which assumption is more important in order for the H–O theorem to hold. Production functions (constant returns to scale) and utility functions are assumed to be of Cobb–Douglas type. In the first simulation, 10,000 pairs of parameters on production and utility functions are selected randomly, where production function on both countries are identical and utility functions can be different. The H–O property is observed for approximately 70% of the solutions. In the second simulation, the same simulation is conducted where utility functions in both countries are identical and production functions can be different. Then, H–O property is observed for approximately 50% of the solutions.

Suggested Citation

  • Fukiharu, Toshitaka, 2004. "A simulation of the Heckscher–Ohlin theorem," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 64(1), pages 161-168.
  • Handle: RePEc:eee:matcom:v:64:y:2004:i:1:p:161-168
    DOI: 10.1016/S0378-4754(03)00129-0
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    References listed on IDEAS

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    1. Davis, Donald R. & Weinstein, David E., 1999. "Economic geography and regional production structure: An empirical investigation," European Economic Review, Elsevier, vol. 43(2), pages 379-407, February.
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    Cited by:

    1. Víctor Alexánder Díaz Espana, 2013. "¿Se cumple la teoría neoclásica del comercio internacional?: el caso de la economía colombiana entre 1980 y 2007," Revista Sociedad y Economía, Universidad del Valle, CIDSE, May.
    2. Fukiharu, T., 2013. "Income distribution inequality, globalization, and innovation: A general equilibrium simulation," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 93(C), pages 117-127.

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