ABSTRACT
The role of factor endowments is particularly apparent when we observe trade between many industrialized and developing countries: the industrialized countries import goods that require unskilled labor and tropical land from less developed countries (LDCs), and export goods that require capital, skilled labor, and temperate-climate land-intensive goods to them. A far larger volume of trade occurs among industrialized countries, where differences in factor endowments are not as apparent.1 While such trade may be consistent with the H-O framework, economists have paid particular attention to circumstances where trade may occur even when there is no apparent basis for comparative advantage. Based on the models developed in the past two chapters, that means no differences in factor endowments and no differences in technology, which might otherwise explain why their prices differ before trade. Instead, economists have focused on the nature of trade when there are economies of scale and markets are not perfectly competitive.
