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This chapter examines test results from the Heckscher–Ohlin (HO) proposition in a multi-factor, multi-country framework that began with Maskus (1985) and Bowen, Leamer, and Sveikauskas (1987) and have continued to be carried out by Trefler (1993, 1995), Davis and Weinstein (2001), and others. It also considers empirical tests of the basic Heckscher–Ohlin–Vanek (HOV) relationship which states that the amount of a particular factor of production embodied in a country’s net trade of goods and services equals its endowment of this factor minus its share of world consumption times the world endowment of this factor. Among other topics covered are country-pair tests of the HO proposition and empirical investigations into the importance of intra-industry trade and increasing returns. The test of Helpman’s (1984) non-factor price equalization model undertaken by Choi and Krishna (2004) is also reviewed.

This chapter surveys the development of the Heckscher–Ohlin (HO) trade theory. It discusses trade theory in the 1930s; the Heckscher–Ohlin–Samuelson (HOS) model; the Heckscher–Ohlin–Vanek (HOV) model; the “new” trade theory and differentiated products; the Helpman non-factor price equalization model; and the Ohlin’s views on modern Heckscher–Ohlin trade models.

This chapter summarizes what has been learned from the various empirical tests and discusses lines of research topics that warrant greater attention in the future. Specifically it discusses the modification of the Heckscher–Ohlin model and the further broadening of the analytical framework.

It has long been recognized that bilateral trade patterns are well described empirically by the so-called gravity equation, which relates trade between two countries positively to both of their incomes and negatively to the distance between them, usually with a functional form that is reminiscent of the law of gravity in physics. It also used to be frequently stated that the gravity equation was without theoretical foundation. In particular, it was claimed that the Heckscher-Ohlin model (HO model) of international trade was incapable of providing such a foundation, and perhaps even that the HO model was theoretically inconsistent with the gravity equation. This chapter argues that the HO model, at least in some of the equilibria that it permits, admits easily of interpretations that accord readily with the gravity equation. At the same time, developing these interpretations can yield additional insights about why bilateral trade patterns in some cases depart from the gravity equation as well. After describing the theoretical foundations for the gravity equation, the chapter examines frictionless trade and trade impediments.

This chapter reviews selected empirical investigations of the other basic propositions of the Heckscher–Ohlin (HO) model. These are the relationship between relative changes in product prices and relative changes in factor prices (Stolper–Samuelson effects); the relationship between changes in relative factor supplies and changes in the composition of output (Rybczynski effects), and the relationship between trade and the equalization of factor prices (factor price equalization effects).

This chapter starts by providing the foundation for the book’s central theoretical model that explores the link between democratization and trade reforms in developing countries. The chapter builds on this foundation to understand how political competition over office by political parties in the context of new democratic institutions affects trade policy given certain labor market conditions. The theoretical model then uses the logic of game-theory to analyze how labor market conditions affects the domestic balance of political power between labor and capital in a newly democratized regime and how this in turn influences the design of trade policy by political parties (including the ruling party) in this regime. The model is then extended to understand when and how the adoption of trade reforms in new democracies may decrease the likelihood of electoral malpractices in these regimes and thus foster democratic consolidation.