Recent Trends in International Economics

• Author: Arthur I. Bloomfield
• DOI: 10.1177/000271626938600114
• Published date: 01 November 1969
• Date: 01 November 1969
• Subject Matter: Articles

SUPPLEMENT
Recent Trends in International Economics*
By ARTHUR I. BLOOMFIELD
This article attempts to sketch some
since 1965 in the two main theoretical
of the main trends in international eco-
branches of this field: the &dquo;pure&dquo; (or
nomics during the five years that have
&dquo;real&dquo;) theory of international trade
elapsed since the last such survey was
and international monetary (or balance-
published in THE ANNALS.1 In so do-
of-payments) theory.2
2
Empirical and
ing, it provides a guide to some of the
policy-oriented studies, which comprise
voluminous literature that has appeared
so large and important a part of the
literature on international economics
* Because of the frequent references in this
article
generally, will, in the main, be by-passed.
to certain economic journals, they will
be abbreviated as follows:
Even with regard to purely theoretical
AER
American Economic Review
2
The literature on international economic
CJEPS Canadian Journal of Economics and
theory has been the subject of numerous sur-
Political Science
veys and syntheses, nearly all of them appear-
CJE
Canadian Journal of Economics
ing in 1965 or earlier. See especially J. Bhag-
Ec
Economica
wati, "The Pure Theory of International
Ecra
Econometrica
Trade: A Survey," EJ (March 1964), pp.
EJ
Economic Journal
1-84; J. S. Chipman, "A Survey of the The-
ER
Economic Record
ory of International Trade," Ecra (July 1965),
IER
International Economic Review
pp. 477-519; ibid. (October 1965), pp. 685-
JPE
Journal of Political Economy
760; and ibid. (January 1966), pp. 18-76;
Kyk
Kyklos
W. M Corden, Recent Developments in the
Man
The Manchester School
Theory of International Trade, Special Papers
OEP
Oxford Economic Papers
in International Economics, no 7 (Princeton,
QJE
Quarterly Journal of Economics
N.J.: Princeton University Press, 1965); R. E.
RES
Review of Economics and Statistics
Caves, Trade and Economic Structure (Cam-
WA
Weltwirtschaftliches Archiv
bridge, Mass.: Harvard University Press,
1
C. P. Kindleberger, "Trends in Interna-
1960) ; and A. O. Krueger, "Balance-of-Pay-
tional Economics," THE ANNALS, (March
ments Theory," Journal of Economic Litera-
1965), pp. 170-179.
ture (March 1969), pp. 1-26.
Arthur I. Bloom field, Ph.D., Philadelphia, Pennsylvania, is Professor of Economics,
University of Pennsylvania, and has been Visiting Professor at Johns Hopkins Univer-
sity, Princeton University, and the City University of New York. As economist or
consultant, he has been associated with the Federal Reserve Bank of New York and a
number of United States government agencies and commissions. He has undertaken
assignments in the Far East and Africa for United States government foreign-aid agen-
cies, the United Nations, and the Ford Foundation. Among his books and monographs
are Capital Imports and the American Balance of Payments, 1934-1939 (1950), Banking
Reform in South Korea (1951), and Monetary Policy under the International Gold
Standard, 1880-1914 (1959).
148

---

149
studies, space limitations permit only a
argue that, contrary to what is sometimes
selective treatment of the literature and
believed, it is possible in such cases to
a bare clue as to the content of the
make meaningful statements regarding
individual publications referred to.
the relative factor-intensity of goods
and factor-endowment positions, or to
THEORY OF COMPARATIVE ADVANTAGE
derive meaningful theorems regarding
There have been further refinements
international specialization patterns.4
4
of the Heckscher-Ohlin (or &dquo;factor-
Bhagwati demonstrates that, contrary
proportions&dquo;) version of the theory of
to what is thought, certain restrictions
comparative advantage, which states, on
on demand conditions have to be speci-
the basis of rigorous assumptions, that
fied if the two-country, two-commodity
a country will export those goods which
models
of
comparative advantage,
use a relatively large amount of its rela-
whether the Ricardian or the Heckscher-
tively abundant factor of production
Ohlin version (using the price defini-
and import those goods which, if pro-
tion of factor abundance in the latter
duced at home, use a relatively large
case), are to be proved.5 Ford indicates
amount of its relatively scarce factor.
the conditions under which a particular
This contrasts with the earlier classical
pattern of trade can simultaneously con-
(Ricardian) version of the theory, which
form to, or be explained by, both the
explained the commodity composition of
factor-proportions and classical theories
trade in terms of international differ-
of comparative advantage.
6
ences in comparative factor productivi-
Bardhan analyzes the pattern of inter-
ties.
national specialization (and the effect
Kenen criticizes what he regards as a
of trade on factor prices) when the
simpliste concept of capital used in the
Heckscher-Ohlin assumption of identical
factors-proportions analysis-the suppo-
production functions by industry in the
sition that disembodied &dquo;waiting&dquo; en-
trading countries is replaced by the
ters into production as a separate input
assumption of neutral intercountry dif-
-and builds a model with fixed stocks
ferences in production functions. He
of capital and labor which are inert un-
shows that the Heckscher-Ohlin predic-
til improved by acts of investment, gen-
tions would not be borne out in a num-
erating service flows that enter into
4
J. L. Ford, "On the Structure of, and
production. The two-country version of
Gains from, International Trade," Kyk, 1965,
his model yields most of the conven-
no. 4, pp. 670-684; and J. Vanek, "The Fac-
tional Heckscher-Ohlin results, but one
tor-Proportions Theory: The N-Factor Case,"
of the important modifications is that a
Kyk, 1968, no. 4, pp. 749-756. A. Amano
difference in capital scarcity, measured
("Intermediate Goods and the Theory of
Comparative Advantage: A Two-Country,
by relative interest rates, can affect
Three-Commodity Case," WA
,
1966, no. 2,
factor-service flows, and, thus, the pat-
pp. 340-345) provides an example of a two-
tern of the commodity composition of
country, three-commodity model (the third
traded
commodity being an intermediate good) where
Ford analyzes the Heckscher-Ohlin
pretrade price (cost) ratios, in a classical com-
parative-advantage framework, do not cor-
model in cases where there are (1) three
rectly predict the final pattern of trade.
goods, three factors, and three countries
5
J. Bhagwati, "The Proofs of the Theorems
and ( 2 ) three factors and two of each
on
Comparative Advantage," EJ (March
of the other variables; Vanek examines
1967), pp. 75-83.
the
6
J. L. Ford, "On the Equivalence of the
case of more than two factors. They
Classical and Factor-Proportions Models in
3
P. B. Kenen, "Nature, Capital, and Trade,"
Explaining International Trade Patterns,"
JPE (October 1965), pp. 437-460.
Man (May 1967), pp. 185-198.

---

150
ber of the resulting cases that he dis-
plied to the South and non-South regions
tinguishes.7
7
A geometrical proof of his
of the United States, is made by Mo-
results is furnished by Mishan.8 Bard-
roney and Walker.
Contrary to their
han further analyzes the patterns of
expectations, they find some indication
comparative advantage and international
that industries requiring a relatively
specialization in a model of a growing
high capital-labor ratio in production
international economy.9
are more heavily concentrated in the
South than those requiring a relatively
INDUCTIVE TESTING OF THEORY OF
low capital-labor ratio. 12 In rebuttal,
COMPARATIVE ADVANTAGE
Estle argues that this is not a refutation
Inductive testing of the Heckscher-
of the Heckscher-Ohlin theory, since the
Ohlin theory continues, and further ef-
South is in fact a relatively capital-
forts have been made to &dquo;explain&dquo; the
abundant, not labor-abundant, region.
famous Leontief Paradox according to
Applying the same kind of test to New
which the United States, in contrast to
England, a relatively labor-abundant
the expectations of that theory, appears,
region compared with the rest of the
in practice, to export labor-intensive
United States, he finds that its com-
products and to import capital-intensive
parative advantage lies in labor-inten-
ones.1o
sive industries, as would be predicted by
Hodd empirically tests the Heckscher-
the theory. 13
Ohlin theory by investigating trade flows
The labor and natural-resource re-
between the United States and the
quirements of United States exports and
United Kingdom, and between the
import-replacements for 1962, on the
United Kingdom and the rest of the
basis of the 1958 input-output table, are
world, in selected years. He obtains
computed by Weiser, who finds that &dquo;the
results that appear to be inconsistent
Leontief Paradox continues to exist.&dquo;
with the traditional form of that the-
Accepting Vanek’s earlier explanation
ory.&dquo; A regional test of the theory, ap-
for that paradox, which runs in terms
of the scarcity of natural resources and
7
P. K. Bardhan, "International Differences
their complementarity with the abundant
in Production Functions, Trade, and Factor
factor, capital-requiring both to be
Prices," EJ (March 1965), pp. 81-87.
conserved in United States
8
E.
foreign trade
J. Mishan, "International Factor Price
Determination with Neutral Technical
-he finds the
Prog-
pattern of changes in
ress," Ec (August 1966), pp. 330-335.
factor requirements between 1947 and
9
P. K....