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A Simple Heckscher-Ohlin Synthesis of Trade, Investment, Factor Flows and Transfers

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  • James R. Melvin

Abstract

There is an extensive literature in the Heckscher-Ohlin framework which considers trade, investment, factor flows and transfers, but the models to investigate these phenomenon are typically different. This paper shows that all of these can be analyzed in the same simple two-sector trade model. A world-factor box diagram is used and it is shown that whether or not investment can duplicate the international trade equilibria will depend on which commodity is repatriated. It is shown that the assumption of tastes becomes crucial when factors flow, and when international transfers are analyzed the traditional results that the secondary burden of a transfer depends on preferences is re-established. It is shown that because of the Stolper-Samuelson result a tertiary burden or benefit is possible and indeed for one of the two factors a transfer could improve welfare.

Suggested Citation

  • James R. Melvin, 1995. "A Simple Heckscher-Ohlin Synthesis of Trade, Investment, Factor Flows and Transfers," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 131(III), pages 343-359, September.
    • Handle: RePEc:ses:arsjes:1995-iii-5
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    References listed on IDEAS

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    1. Melvin, James R, 1989. "Trade in Producer Services: A Heckscher-Ohlin Approach," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1180-1196, October.
    2. Alan V. Deardorff, 2011. "The General Validity of the Law of Comparative Advantage," World Scientific Book Chapters, in: Robert M Stern (ed.), Comparative Advantage, Growth, And The Gains From Trade And Globalization A Festschrift in Honor of Alan V Deardorff, chapter 10, pages 73-90, World Scientific Publishing Co. Pte. Ltd..
    3. James R. Melvin, 1996. "Trade and Investment with Constant and Increasing Returns to Scale," Canadian Journal of Economics, Canadian Economics Association, vol. 29(s1), pages 361-365, April.
    4. Ronald W. Jones, 1984. "The Transfer Problem in a Three-Agent Setting," Canadian Journal of Economics, Canadian Economics Association, vol. 17(1), pages 1-14, February.
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