DP3 Factor Content Functions and the Theory of International Trade

Author(s): J Peter Neary, Albert G Schweinberger
Publication Date: January 1984
Keyword(s): Factor Content Functions, Factor Trade Utility Functions, Gains from Trade, Heckscher-Ohlin Theorem, Land, Power
JEL(s): 411, A10, A11, M13
Programme Areas: International Trade and Regional Economics, Development Economics, Economic History
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3

This Paper introduces the concepts of direct and indirect factor trade utility functions and uses them to derive Marshallian and Hicksian factor content functions, which express the quantities of factors embodied in net exports as a function of the economy's factor prices and endowments. The properties of these functions are discussed and they are used to derive a number of new results. In particular, it is shown that, in certain circumstances, the existence of gains from trade is necessary and sufficient for the Heckscher-Ohlin theorem to hold in its factor content form.