The Shortcomings of the Orthodox Theory

The classical theory of international trade postulates different production functions for identical goods in different countries and attributes comparative advantage to these differences. Its premises were under attack before the factor-proportions theory was revealed in its full maturity in 1933. Both Graham and Williams made major critiques but neither succeeded in dethroning the reigning concepts.1 Ohlin’s expansion of Heckscher’s seminal paper presented a viable alternative to the classical model.2 Since its appearance, the factor-proportions model has held centre stage despite the clear superiority of the classical model as a basis for empirical work. There have, however, been many critiques of the factor-proportions theory and these critiques have been appearing with increasing frequency. The critiques derive, in part, from the empirical shortcomings of the theory, in part from the clear lack of relevance of the theory to some major post-World War Two phenomena and, in part, from the vulnerability of some of its premises.3 Not the least important target for criticism has been the increasingly elegant formulations of the factor-proportions theory. These formulations have progressively removed the central core of international trade theory away from Heckscher’s concepts and the literary version of Ohlin’s model and toward the more restrictive Casselian version.4