ABSTRACT

The previous chapter described the Heckscher-Ohlin (HO) model, which combines neoclassical production and welfare functions that represent, respectively, the supply and demand sides of the economy. This simple framework of analysis permitted us to reach several conclusions about the causes and consequences of international trade. The HO model is, as the previous chapter showed, built on many simplifying assumptions that undermine the model’s accuracy. Technically, the HO model only proves that trade is welfare maximizing under a very special set of assumed circumstances that do not accurately reflect the world we live in. Economists who base their advocacy of free trade on the HO model, therefore, are open to questions about whether the welfare superiority of free trade holds in the real world.