A Neo-Heckscher-Ohlin Model of Trade with Endogenous Production Patterns

The empirical performance of orthodox trade theory in predicting something as elemental as the flow of trade is abysmal. The reason: trade theory's backbone - the Heckscher-Ohlin model of trade - is based on an array of heroic assumptions that are unlikely to hold. We propose to employ the novel approach of inframarginal analysis to relax all critical such assumptions. The ensuing framework will represent the first of its kind to reconcile all major models of trade (Heckscher-Ohlin, Smithian, and Ricardian), and will illustrate the precise mathematical relationship between all relevant trade determinants and trade flows. The core propositions and policy implications of our model will be thoroughly investigated.