A Synthesis of the Heckscher-Ohlin and Oniki-Uzawa Trade Models with Heterogeneous Tastes, Different Technologies, and Endogenous Wealth

Abstract

This paper examines the role of preferences and technological differences between two countries in determining dynamics of global wealth and pattern of trade in a reformed H-O model of international trade. The paper builds a trade model with endogenous wealth accumulation and labor and capital distribution between sectors and between countries under perfectly competitive markets and free trade. The model is based the H-O model, the Solow-Uzawa neoclassical growth model and the Oniki-Uzawa trade model. Each country has three sectors, producing one globally homogenous tradable capital good, specifying in producing one tradable commodity, and supplying non-tradable goods and services. The study simulates the model for the economy to demonstrate existence of equilibrium points and motion of the dynamic system. It examines effects of changes in output elasticity of an industrial sector, population expansion, and propensities to consume the domestic commodity, to consume the other country’s commodity, to consume services, and to hold wealth.