IDEAS home Printed from https://ideas.repec.org/p/toh/tergaa/346.html
   My bibliography  Save this paper

The Heckscher-Ohlin-Samuelson Model and the Cambridge Capital Controversies

Author

Listed:
  • Kazuhiro Kurose
  • Naoki Yoshihara

Abstract

This paper examines the validity of the factor price equalisation theorem (FPET) in relation to capital theory. Additionally, it presents a survey of the literature on Heckscher-Ohlin-Samuelson (HOS) models that treat capital as a primary factor, beginning with Samuelson (1953). Furthermore, this paper discusses the Cambridge capital controversy, which contends that marginal productivity theory does not hold when capital is assumed to be as a bundle of reproducible commodities instead of as a primary factor. Consequently, it is shown that under this assumption, the FPET does not hold, even when there is no reversal of capital intensity. This paper also demonstrates that the recent studies on the dynamic HOS trade theory generally ignore the difficulties posed by the capital controversies and are thereby able to conclude that the FPET holds even when capital is modelled as a reproducible factor. Our analysis suggests that there is a need for a basic theory of international trade that does not rely on factor price equalisation and a model that formulates capital as a bundle of reproducible commodities.

Suggested Citation

  • Kazuhiro Kurose & Naoki Yoshihara, 2016. "The Heckscher-Ohlin-Samuelson Model and the Cambridge Capital Controversies," TERG Discussion Papers 346, Graduate School of Economics and Management, Tohoku University.
    • Handle: RePEc:toh:tergaa:346
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10097/63710
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. David Levhari, 1965. "A Nonsubstitution Theorem and Switching of Techniques," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 79(1), pages 98-105.
    2. Zhiqi Chen, 1992. "Long-Run Equilibria in a Dynamic Heckscher-Ohlin Model," Canadian Journal of Economics, Canadian Economics Association, vol. 25(4), pages 923-943, November.
    3. Maurice Obstfeld & Kenneth S. Rogoff, 2005. "Global Current Account Imbalances and Exchange Rate Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(1), pages 67-146.
    4. Paul A. Samuelson, 1953. "Prices of Factors and Goods in General Equilibrium," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 21(1), pages 1-20.
    5. Luigi L. Pasinetti, 2000. "Critique of the neoclassical theory of growth and distribution," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 53(215), pages 383-431.
    6. Kemp, Murray C & Wegge, Leon L F, 1969. "On the Relation between Commodity Prices and Factor Rewards," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 10(3), pages 407-413, October.
    7. Kazuo Nishimura & Koji Shimomura, 2012. "Trade and Indeterminacy in a Dynamic General Equilibrium Model," Springer Books, in: John Stachurski & Alain Venditti & Makoto Yano (ed.), Nonlinear Dynamics in Equilibrium Models, edition 127, chapter 0, pages 347-361, Springer.
    8. Burmeister,Edwin, 1980. "Capital Theory and Dynamics," Cambridge Books, Cambridge University Press, number 9780521297035, September.
    9. Pierangelo Garegnani, 2024. "Heterogeneous Capital, the Production Function and the Theory of Distribution," Springer Studies in the History of Economic Thought, in: Roberto Ciccone (ed.), Capital Theory, the Surplus Approach, and Effective Demand, pages 147-193, Springer.
    10. Stiglitz, Joseph E, 1970. "Factor Price Equalization in a Dynamic Economy," Journal of Political Economy, University of Chicago Press, vol. 78(3), pages 456-488, May-June.
    11. David Levhari & Paul A. Samuelson, 1966. "The Nonswitching Theorem is False," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 80(4), pages 518-519.
    12. Wolfgang F. Stolper & Paul A. Samuelson, 1941. "Protection and Real Wages," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 9(1), pages 58-73.
    13. Eric W. Bond & Kazumichi Iwasa & Kazuo Nishimura, 2012. "The dynamic Heckscher–Ohlin model: A diagrammatic analysis," International Journal of Economic Theory, The International Society for Economic Theory, vol. 8(2), pages 197-211, June.
    14. Michio Morishima, 1966. "Refutation of the Nonswitching Theorem," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 80(4), pages 520-525.
    15. Metcalfe, J S & Steedman, Ian, 1972. "Reswitching and Primary Input Use," Economic Journal, Royal Economic Society, vol. 82(325), pages 140-157, March.
    16. Burmeister, Edwin, 1978. "An interest rate and factor price equalization theorem with nontraded commodities," Journal of International Economics, Elsevier, vol. 8(1), pages 1-9, February.
    17. Paul A. Samuelson, 1962. "Parable and Realism in Capital Theory: The Surrogate Production Function," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 29(3), pages 193-206.
    18. Kazuo Nishimura & Koji Shimomura, 2006. "Indeterminacy in a dynamic two-country model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 29(2), pages 307-324, October.
    19. Pierangelo Garegnani, 2024. "Switching of Techniques," Springer Studies in the History of Economic Thought, in: Roberto Ciccone (ed.), Capital Theory, the Surplus Approach, and Effective Demand, pages 195-208, Springer.
    20. Yoshinori Kurokawa, 2014. "A Survey Of Trade And Wage Inequality: Anomalies, Resolutions And New Trends," Journal of Economic Surveys, Wiley Blackwell, vol. 28(1), pages 169-193, February.
    21. Michael Bruno & Edwin Burmeister & Eytan Sheshinski, 1966. "The Nature and Implications of the Reswitching of Techniques," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 80(4), pages 526-553.
    22. Avi J. Cohen, 2003. "Retrospectives: Whatever Happened to the Cambridge Capital Theory Controversies?," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 199-214, Winter.
    23. Samuelson, Paul A., 1975. "Trade pattern reversals in time-phased Ricardian systems and intertemporal efficiency," Journal of International Economics, Elsevier, vol. 5(4), pages 309-363, November.
    24. Charles Blackorby & William Schworm & Anthony Venables, 1993. "Necessary and Sufficient Conditions for Factor Price Equalization," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(2), pages 413-434.
    25. Malthus, Thomas Robert, 1815. "The Grounds of an Opinion on the Policy of Restricting the Importation of Foreign Corn," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number malthus1815.
    26. Harcourt,G. C., 1972. "Some Cambridge Controversies in the Theory of Capital," Cambridge Books, Cambridge University Press, number 9780521096720, September.
    27. Eric Bond & Kazumichi Iwasa & Kazuo Nishimura, 2011. "A dynamic two country Heckscher–Ohlin model with non-homothetic preferences," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 48(1), pages 171-204, September.
    28. Chipman, John S, 1969. "Factor Price Equalization and the Stolper-Samuelson Theorem," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 10(3), pages 399-406, October.
    29. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    30. Paul A. Samuelson, 1966. "A Summing Up," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 80(4), pages 568-583.
    31. Wegge, Leon L F & Kemp, Murray C, 1969. "Generalizations of the Stolper-Samuelson and Samuelson-Rybczynski Theorems in Terms of Conditional Input-Output Coefficients," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 10(3), pages 414-425, October.
    32. J. S. Metcalfe & Ian Steedman, 1979. "Reswitching and Primary Input Use," Palgrave Macmillan Books, in: Ian Steedman (ed.), Fundamental Issues in Trade Theory, chapter 2, pages 15-37, Palgrave Macmillan.
    33. Dixit, Avinash, 1981. "The export of capital theory," Journal of International Economics, Elsevier, vol. 11(2), pages 279-294, May.
    34. Ethier, Wilfred J., 1984. "Higher dimensional issues in trade theory," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 3, pages 131-184, Elsevier.
    35. Samuelson, Paul A., 1978. "Interest rate equalization and nonequalization by trade in Leontief-Sraffa models," Journal of International Economics, Elsevier, vol. 8(1), pages 21-27, February.
    36. Luigi L. Pasinetti, 2000. "Critique of the neoclassical theory of growth and distribution," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 53(215), pages 383-431.
    37. Uekawa, Yasuo & Kemp, Murray C. & Wegge, Leon L., 1973. "P- and PN-matrices, Minkowski- and Metzler- matrices, and generalizations of the Stolper- Samuelson and Samuelson-Rybczynski theorems," Journal of International Economics, Elsevier, vol. 3(1), pages 53-76, February.
    38. Hahn, Frank, 1982. "The Neo-Ricardians," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 6(4), pages 353-374, December.
    39. Smith, Alasdair, 1984. "Capital theory and trade theory," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 6, pages 289-324, Elsevier.
    40. Inada, Ken-ichi, 1971. "The Production Coefficient Matrix and the Stolper-Samuelson Condition," Econometrica, Econometric Society, vol. 39(2), pages 219-239, March.
    41. Kuga, Kiyoshi, 1972. "The Factor-Price Equalization Theorem," Econometrica, Econometric Society, vol. 40(4), pages 723-736, July.
    42. Morishima,Michio, 1976. "The Economic Theory of Modern Society," Cambridge Books, Cambridge University Press, number 9780521291682, September.
    43. Nikaido, Hukukane, 1972. "Relative shares and factor price equalization," Journal of International Economics, Elsevier, vol. 2(3), pages 257-263, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kazuhiro Kurose & Naoki Yoshihara, 2018. "The Heckscher—Ohlin—Samuelson Trade Theory and the Cambridge Capital Controversies: On the Validity of Factor Price Equalisation Theorem," Working Papers SDES-2018-17, Kochi University of Technology, School of Economics and Management, revised Nov 2018.
    2. Kurose, Kazuhiro & Yoshihara, Naoki, 2018. "The Heckscher—Ohlin—Samuelson Trade Theory and the Cambridge Capital Controversies: On the Validity of Factor Price Equalisation Theorem," Discussion Paper Series 686, Institute of Economic Research, Hitotsubashi University.
    3. Carlo Milana, 2019. "Solving the Reswitching Paradox in the Sraffian Theory of Capital," Applied Economics and Finance, Redfame publishing, vol. 6(6), pages 97-125, November.
    4. Michael Osborne & Ian Davidson, 2016. "The Cambridge capital controversies: contributions from the complex plane," Review of Political Economy, Taylor & Francis Journals, vol. 28(2), pages 251-269, April.
    5. J. Barkley Rosser, 2020. "Austrian themes and the Cambridge capital theory controversies," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 33(4), pages 415-431, December.
    6. Naoki Yoshihara & Soh Kaneko, 2016. "On the Existence and Characterization of Unequal Exchange in the Free Trade Equilibrium," Metroeconomica, Wiley Blackwell, vol. 67(2), pages 210-241, May.
    7. Carlo Milana, 2024. "Refuting Samuelson’s capitulation on the re-switching of techniques in the Cambridge capital controversy," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 37(2), pages 179-197, June.
    8. Luigi L. Pasinetti, 2000. "Critique of the neoclassical theory of growth and distribution," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 53(215), pages 383-431.
    9. Luigi L. Pasinetti, 2000. "Critique of the neoclassical theory of growth and distribution," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 53(215), pages 383-431.
    10. Nadia Garbellini, 2018. "Inequality in the 21st Century:A Critical Analysis of Piketty`s Work," Working Papers Series 69, Institute for New Economic Thinking.
    11. Attilio Trezzini, 2018. "Piero Sraffa’s Use of the History of Economic Thought in the Cambridge Lectures," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 4(1), pages 189-209, March.
    12. Saverio M. Fratini, 2019. "On The Second Stage Of The Cambridge Capital Controversy," Journal of Economic Surveys, Wiley Blackwell, vol. 33(4), pages 1073-1093, September.
    13. Claustre Bajona & Timothy Kehoe, 2010. "Trade, Growth, and Convergence in a Dynamic Heckscher-Ohlin Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(3), pages 487-513, July.
    14. Stefano Zambelli, 2014. "Aggregate Production Functions and Neoclassical Properties: An Empirical Verification," ASSRU Discussion Papers 1405, ASSRU - Algorithmic Social Science Research Unit.
    15. G. C. Harcourt, 2015. "On the Cambridge, England, Critique of the Marginal Productivity Theory of Distribution," Review of Radical Political Economics, Union for Radical Political Economics, vol. 47(2), pages 243-255, June.
    16. Kersting, Götz & Schefold, Bertram, 2021. "Best techniques leave little room for substitution. A new critique of the production function," Structural Change and Economic Dynamics, Elsevier, vol. 58(C), pages 509-533.
    17. Garbellini, Nadia, 2020. "Measurement without theory, and theory without measurement: What's wrong with Piketty's capital in the XXI century?," Structural Change and Economic Dynamics, Elsevier, vol. 52(C), pages 50-62.
    18. Avi J. Cohen, 2003. "Retrospectives: Whatever Happened to the Cambridge Capital Theory Controversies?," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 199-214, Winter.
    19. Avi J. Cohen & Geoffrey C. Harcourt, 2010. "Reswitching and Reversing in Capital Theory," Chapters, in: Mark Blaug & Peter Lloyd (ed.), Famous Figures and Diagrams in Economics, chapter 24, Edward Elgar Publishing.
    20. Eric W. Bond & Kazumichi Iwasa & Kazuo Nishimura, 2012. "The dynamic Heckscher–Ohlin model: A diagrammatic analysis," International Journal of Economic Theory, The International Society for Economic Theory, vol. 8(2), pages 197-211, June.

    More about this item

    JEL classification:

    • B51 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Socialist; Marxian; Sraffian
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:toh:tergaa:346. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tohoku University Library (email available below). General contact details of provider: https://edirc.repec.org/data/fetohjp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.