The Heckscher-Ohlin Model with Endogenous Sector-Specific Capital

The Heckscher-Ohlin Model with Endogenous Sector-Specific Capital

This paper considers the long-run properties of a dynamic specific-factors model with endogenous capital stocks providing a dynamic foundation for the Heckscher-Ohlin model. The long-run equilibrium is fully determined by a static Heckscher-Ohlin model in primary factors although capital rentals may not be equal between sector`s. All theorems of the static model carry over to the present model`s steady state as long as countries diversify. Primary-factor endowments determine long-run comparative advantage and long-run capital stocks. Capital endowments are completely irrelevant for the determination of the long-run trade pattern.