Maritime Trade and Transport - HWWI

Whereas Ricardian foreign trade theory analyzes the effects of international differences in
productivity or cost resulting from different production technologies, the Heckscher-Ohlin
model bases international trade on the differing endowments of countries with production factors.
According to this theory, it is advantageous for countries to export goods whose production
requires especially intensive use of the factors that are in abundance. A country rich in
labor, but whose available capital is low in comparison to the available labor potential, will export
goods that are correspondingly labor-intensive and will import from other countries goods
whose production requires intensive capital input.
According to traditional foreign trade theories, differences between countries lead to interindustrial
trade, meaning an exchange of goods produced by various industries. In the course
of increasing globalization, however, these differences are likely to lessen. The occurrence of
international movements of capital and migrations in labor are thus associated with a reduction
in differences in factor endowments between countries. Foreign direct investments, in
addition, often go hand in hand with a transfer of technology, so that technological differences
between the countries also become less important. If the validity of traditional foreign
trade theory is not questioned, international flows of trade are likely to decrease. This, however,
is not confirmed by the empirical evidence.
With the growing impact of the international exchange of similar goods between countries
which only differ to a minor degree from one another, it has become increasingly evident
that the principle of comparative advantages is not the only cause for trade. More recent
treatises on foreign trade theory which, in contrast to traditional foreign trade theory, assume
economies of scale in production, make it clear that specialization and trading profits can
even be realized if the countries do not differ from one another. This results in intra-industrial
trade, which increases product variety to the advantage of the consumer and at the same time
permits the company to fully tap the advantages of mass production that have not yet been
utilized.
Furthermore, the modern trade theory suggests a connection between the size (e.g. the
economic power) of countries and the volume of trade. According to it, in the course of progressive
economic development, the volume of trade increases more than proportionately if,
and only if, the countries involved converge in terms of their economic power (e.g. income). 6
6 See Helpman, Krugman (1985) and Helpman (1987).
18 Berenberg Bank · HWWI: Strategy 2030 · No. 4