Several studies have investigated the validity of the classical trade theories. The evidence collected by
0 10 20 30 40 50 60 70 80 90 100
0 10 20 30 40 50 60 70 80 90 100
100.00 (1) USA 1
86.547 (3) AUSTRALIA 2
84.123 (2) CANADA 3
72.872 (6) MALAYSIA 4
69.768 (4) GERMANY 5
69.283 (7) TAIWAN 6
66.489 (5) UNITED KINGDOM 7
66.407 (9) FRANCE 8
59.758 (8) SPAIN 9
58.416 (13) THAILAND 10
56.303 (11) JAPAN 11
50.813 (12) CHINA MAINLAND 12
47.787 SAO PAULO 13
47.354 ZHEJIANG 14
46.476 (10) KOREA 15
44.499 (20) COLOMBIA 16
44.310 (14) ITALY 17
43.877 (16) SOUTH AFRICA 18
42.507 MAHARASHTRA 19
42.181 (17) INDIA 20
40.667 (15) BRAZIL 21
37.851 (18) PHILIPPINES 22
33.636 ROMANIA 23
33.337 (19) MEXICO 24
29.803 (23) TURKEY 25
24.584 (21) RUSSIA 26
21.526 (22) POLAND 27
13.213 (25) INDONESIA 28
100.00 (2) FINLAND 1
98.159 (6) SINGAPORE 2
92.363 (4) DENMARK 3
90.311 (10) HONG KONG 4
89.730 (3) SWITZERLAND 5
88.683 (5) LUXEMBOURG 6
87.142 (7) SWEDEN 7
86.475 (1) NETHERLANDS 8
83.377 (11) ICELAND 9
82.579 (8) AUSTRIA 10
79.355 (9) IRELAND 11
75.761 (12) NORWAY 12
74.557 (13) BELGIUM 13
72.198 (14) NEW ZEALAND 14
67.003 ILE-DE-FRANCE 15
61.542 (15) CHILE 16
59.781 (16) ESTONIA 17
57.520 BAVARIA 18
56.060 RHONE-ALPS 19
52.243 CATALONIA 20
45.554 (19) CZECH REPUBLIC 21
43.567 (17) ISRAEL 22
42.463 (18) HUNGARY 23
41.391 LOMBARDY 24
35.174 (20) PORTUGAL 25
34.174 (21) GREECE 26
30.288 (23) SLOVAK REPUBLIC 27
12.464 (26) ARGENTINA 29
9.811 (24) VENEZUELA 30
29.170
27.768
(22) SLOVENIA 28
JORDAN 29
Figure 2.4 The world competitiveness scoreboard (larger nations), 2002 rankings are in brackets
Source: IMD World Competitiveness Yearbook 2003, 4.
Figure 2.5 The world competitiveness scoreboard (smaller nations), 2002 rankings are in brackets
Source: IMD World Competitiveness Yearbook 2003, 4.
MacDougall shortly after World War II showed that comparative cost was useful in explaining trade patterns.11 Other studies using different data and time periods have yielded results similar to MacDougall’s. Thus there is support for the claim that relative labor productivities determine trade patterns.
These positive results were subsequently ques- tioned. The studies conducted by Leontief revealed that the USA actually exports labor-intensive goods and imports capital-intensive products.12 These paradoxical findings are now called the Leontief Paradox. Thus, the findings are ambiguous, indi- cating that, in its simplest form, the Heckscher– Ohlin theory is not supported by the evidence.
In theory, the more different two countries are, the more they stand to gain by trading with each other.There is no reason why a country should want to trade with another that is a mirror image of itself. However, a look at world trade casts some doubt on the validity of classical trade theories. Developed
countries trade more among themselves than with developing countries. There is a tendency for cor- porations in developed countries to prefer to form direct-investment ties in the other more stable, developed countries while avoiding heavy invest- ment in the fast-growing developing world.
The trade pattern shown is surprising theoreti- cally, because advanced economies have similar climate and factor proportions and thus should not trade with one another since there are no compar- ative advantages. Apparently, other variables in addi- tion to factor endowment play a significant role in determining trade volume and practices because considerable trade does occur between developed nations.