ABSTRACT
The previous chapter described the Heckscher-Ohlin (HO) model, which combines simple neoclassical production and welfare functions that represent the supply and demand sides of the economy into a framework within which the causes and consequences of international trade can be analyzed. The HO model is, as the previous chapter showed, built on many simplifying assumptions that undermine the model’s accuracy. The simplifying assumptions permit the model to generate the clear conclusion that free trade is the optimal policy for maximizing human welfare. Technically, the HO model only proves that trade is welfare maximizing under a very special set of assumed circumstances. 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.
