1QEH Working Paper Series – QEHWPS170 Working Paper Number 170 [THIS PAPER HAS BEEN SUPERSEDED BY WORKING PAPER 185 IN THE SAME SERIES, WITH THE EXCEPTION OF PARTS OF SECTIONS 3 AND 4]

This paper offers a formalisation of the insights of Heckscher and Ohlin that is more consistent with the evidence than standard models, and simple enough to be used for teaching and policy analysis, as well as for research. It describes both the effects of a country’s factor endowments on the commodity composition of its trade and the effects of trade-related changes in goods prices on factor prices. The model applies to any numbers of goods or factors. Trade costs, including policy barriers, play a central role in the model, especially by reducing elasticities of demand