ABSTRACT

In the standard Hecksher–Ohlin theoretical framework international trade flows are determined by differences in national comparative advantages, and their volume increases as countries limit production in sectors where they enjoy competitive advantages, i.e. inter-industry trade. In that context protectionism curtails international trade, since tariffs distort international differences of factor prices, which constitute the basis of national comparative advantages. Therefore, trade liberalisation will encourage production and international trade patterns compatible with national comparative advantages differences and it will eventually increase the volume of international trade. As the existence of trade barriers encourages domestic production of a greater variety of products within sectors than competitive advantages dictate, it results in domestic producers operating at suboptimal plant levels and at relatively high production costs. Again trade liberalisation leads to production rationalisation within domestic industries, taking the form of reducing the number and varieties of products, and thus to increased intra-industry specialisation according to economies of specialisation at the product and plant levels.