Trade Pattern, Tourism, and Global Development

This chapter overcomes some essential problems in the H-O model by extending the basic model to a multi-country and multi-sector economy. Most of the previous chapters neglect the role of trade on national and international economic growth. This chapter deals with interdependence between international trade, global economic growth, and income and wealth distribution between countries. I am now focused on the Heckscher–Ohlin (H-O) model. It is a core model in neoclassical trade theory. The standard H-O model is built for a two-country global economy. Each country has access to the same technology for producing two goods using two fixed factors (labor and capital) under conditions of perfect competition and constant returns to scale. Factors of production are mobile between sectors within a country, but immobile internationally. No international borrowing and lending are allowed. The chapter integrates the basic model, Heckscher–Ohlin trade theory, and Oniki–Uzawa trade model. I also introduce habit formation and preference changes in different countries into the global trade growth model proposed in the previous section. The chapter also comments on the complexity of exchange rates and how to analyze exchange rates within the framework proposed in this book.