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In his paper Professor Myint has rightly drawn attention to those policies of the developing countries which can do more harm than good to their development. Evidence can certainly be found in the experience of the past two decades to support the view that such policies as indiscriminate import substitution, dis­couragement of primary commodity production and exports, and excessive optimism about foreign aid, can lead to a misallocation of productive resources and thus impede rather than promote economic development. The author has also rightly reminded us that ‘successful import-substitution need not be confined to manufacturing industry’ and that ‘increasing productivity can occur as frequently in primary production as in manufacturing industry. …’ All these remarks, however, are incidental to the main theme of the paper which is that the principle of comparative advantage is the best guide to foreign trade policy in the developing countries. This view is based on the belief that ‘the theory of comparative costs, as a branch of the static theory of allocation of resources, is neutral between foreign trade and domestic production’, and that ‘in order to maximise the direct gains from trade, resources should be allocated impartially between the export sector and the domestic sector according to the existing comparative advantage’. What the paper attempts to do, in fact, is to evaluate the trade policies of the developing countries with reference to this basic theoretical premise.

Professor Sohmert said that in the first part of his paper Professor Kindle- berger held that arguments for ‘cosmopolitan’ policy solutions were economic; arguments against were mostly political. Many countries and their inhabitants had different preferences. There was a case for allowing them to pursue these to some extent, even if this led to non-optimal results in purely economic terms.

Professor Scott said that much of the basic research on Canada’s international position had been done by Professor Eastman. His first theme in this paper was that Canada’s was a very open economy, so that comparative advantage and factor supply position were important. Both present comparative advantages and the tariff policies of other countries led to highly capital-intensive activities, to a heavy draft on Canada’s domestic savings and to big foreign investment — especially from the United States.

Professor Houssiaux identified a number of issues raised in the paper. First, there was the existence of comparative advantages between North America and Europe. Were these evolving before the Common Market came into existence and if so, in what sense? M. Albert had showed the way in which wage costs moved and how the structure of trade altered.

THE purpose of this paper is to unify various explanations of the differences in comparative costs. There have been two basic approaches to this problem: one is the traditional approach emphasizing the differences in efficiency of productive resources, and the other is the factor-proportions approach which places stress on different resource endowments. The latter approach has been popularized during the past decade in connexion with the international factor price equalization thesis and Leontief's scarcefactor paradox, although recently the balance seems to be moving in favour of the former approach. This tendency is probably due to the rapid development of growth economics, in particular the theory of technical progress which also plays a significant role in this paper. In Section I, I shall set up a formal model which serves to clarify the parts played by various aspects of conditions of production in the determination of comparative-cost structure. In Section II a brief examination of the role of demand side will be given. It will shed light on an interesting relation between production and demand conditions. Finally, in Section III, I shall show that two particular theories of comparative costs, each of which represents a modified version of one of the two basic approaches mentioned above, can be thought of as special cases of our general formulation. I The theory of comparative advantage is particularly concerned with the determination of commodity prices at the pre-trade equilibrium position. Forces underlying the determination of comparative costs thus explain both the international differences in comparative costs and the inter-temporal differences in comparative costs within any given economy. Therefore, in what follows, we shall employ the method of comparative statics by comparing two successive situations in an isolated economy between which some changes in production and/or demand conditions have taken place. I shall adopt the customary two-factor, two-commodity model, and consider a situation where some of both commodities are produced, some

THE theory of international trade has traditionally been built on the assumption that imports are always undertaken for consumption purposes. The possibility that imports may also be required as inputs in the production process is usually thought2 to cause no additional problems. It is not difficult to understand why the classical economists ignored this problem. The Ricardian doctrine of comparative advantage, though a great achievement at its time, was based on the Labour Theory of Value. Therefore, there was no room for intermediate products. To the extent that the classical economists considered the possibility of intermediate products, they used to visualize them as 'congealed' labour. The modern theory of international trade, associated with the names of Heckscher [5], Ohlin [13], and Samuelson [14, 15, 17], starts with the assumption that for each trading partner there exists a unique production possibilities frontier; it then goes on to show that comparative advantage is determined by factor proportions rather than labour requirements. It will presently be shown that the introduction of intermediate products does create several problems for the theory of international trade. For one thing, the production possibilities frontiers need no longer be unique. For another, shifts in demand do not have the usual straightforward effects on the balance of payments. Finally, equilibrium might not exist at all. It should be noted that J. Vanek [20] and P. Samuelson [17] tried to extend the modern theory of international trade to take into account the existence of imported inputs. But although their analysis is very impressive indeed, it does not take into account the fact that one country might be endowed with one or more 'specific' factors of production not available elsewhere. In order to bring the issues within the range of the mathematically unsophisticated, it was considered necessary to rely mainly on geometry despite the fact that the results of this paper could be proved-perhaps with greater generality-by the use of higher mathematics. Section I deals with a simplified model: under highly restrictive assumptions, we show the non-uniqueness of the production possibilities frontier

The basic model of comparative advantage in the theory of international trade has been that associated with the names of Heckscher and Ohlin. The form in which this model has been analyzed over the last few decades has been in terms of the two-factor, two-good geometry developed by Lerner and Samuelson. All the six papers in the new Readings in International Economics (1967) under the section headed "The Theory of Comparative Advantage" are of this type. Recently the model has been extended in some interesting directions. Oniki and Uzawa (1965) have made one of the goods a capital good and studied the effect of accumulation and labor force growth on international equilibrium over time. Komiya (1967) has introduced a third nontrated good into the system and examined the consequences of this for various standard propositions of trade theory within the usual static context. Kenen (1965) has produced an ingenious model in which capital takes the form of augmenting the productivity of labor and land instead of being a separate "factor" in its own right. The present paper examines a model which combines the Oniki-Uzawa and Komiya features by making the third nontraded good a capital good. The main result is to show how factor proportions, and hence the pattern of comparative advantage, in the long run depend ultimately upon the values of two parameters, the propensity to save and the growth rate of the labor force.

This paper utilizes the linear programming technique for developing a general model to solve choice-involving questions in the area of manpower training policy. The model can be used to bring about a more efficient allocation of budgetary and non-financial resources among given training activities. It was applied in an empirical evaluation of on-the-job and institutional training activities in the Province of Ontario, Canada. Some of the findings are reported in the last section of the paper. Theoretically, the objective function is set up to maximize the contribution of government-sponsored training to social real income subject to constraints. Empirically, this contribution is measured as the present value of the cumulated stream of additional earnings of placed graduate-trainees; externalities are ignored due to measurement difficulties. Three resource constraints are used: (1) trainee allowances paid during the course of training, (2) cost of instruction, and (3) government administration expense, which reflect actual budgetary conditions of the training activities evaluated. Also there is an upper boundary for each training activity showing the maximum volume of demand for training by employers and trainees. The empirical evaluation refers to the fiscal year 1966/67. A total of six linear programming models were constructed for purposes of evaluation. The main empirical results were as follows : 1. There was considerable sub-optimality in the conduct of on-the-job activities, chiefly for two reasons; (i) much training was carried in relatively low-yielding industries, (ii) excess administration capacity existed in the handling of these training activities. 2. Training of the under-employed was virtually as efficient as that of the unemployed. 3. Institutional training had comparative advantage in academic upgrading courses. The operation of institutional training activities was sub-optimal, but less so than on-the-job activities, because of (i) the provision of a large volume of commercial training for which the pay-off per unit of cost was relatively low, and (ii) low demand for skill development courses in institutions in spite of fairly high pay-off rates. 4. While some economies of integration of institutional and on-the-job activities could be realized, it would be virtually as efficient to maintain the existing departmental division of responsibilities provided that each were run optimally. In that event, the most efficient choice would be to devote institutional training exclusively to academic upgrading courses and on-the-job training to occupational skill development.

The original purpose of this paper was to attempt to survey and to consolidate the economic theory of the large, growing corporation as this has developed since the publication of Managerial Capitalism1 and to relate the synthetic result to the various problems with which both phases of the present project are concerned. In the event, the relevant body of theory has in the author’s opinion been so much further developed by the contributions of other participants to Phase I that a good deal of the original paper seemed redundant. It was therefore decided instead to provide a general discussion of the theory of the growth of the firm in a separate Introduction and to confine the present paper to related issues. The paper has been completely revised since the Long Island Conference (see Preface) and has been substantially influenced not only by the Conference dis­cussions but also by all the other papers.

The purpose of this paper is to examine trade and financial relations between Latin America and the United States in a global setting. While this implies the sacrifice of detail, it is made essential by the fact that most U.S. policies affecting the hemisphere are reactions to problems elsewhere in the world. The Vietnam war, the growth of highly competitive economic blocs in Europe and the Orient, the reappraisal of international responsibility for defence support, and the U.S. anti-inflation recession have little or nothing to do with Latin America. Yet the apparent trend in American commercial policy from trade liberalisation to increasing protection follows from these problems and promises to have a severe impact on hemisphere trade and development. The impact can best be understood by examining the pattern of commodity trade growth between Latin America and the rest of the world, and by analysing the role of the United States in that process since the Second World War. This examination occupies the first section of the paper.

T RADITIONAL theories of international trade have explained the existence and composition of trade between countries in terms of international differences in production functions and factor endowments. More recently, increasing attention has been paid to other influences, which lie at the fringe of the traditional theory. These include the specific character of factors such as natural resources, the influence of tariffs and other restrictions on trade, and differences in size of country. Empirical studies of the composition of international trade have tended to test hypotheses about only a single one of these determinants. Yet it seems unlikely that they are mutually exclusive; one should expect several different influences simultaneously to play a part in shaping any given flow of trade. Accordingly, we have carried out an analysis of a particular trade flow to try to assess their relative empirical importance. The specific trade flow with which we are concerned is that between the Republic of Ireland and the United Kingdom. We have chosen to analyse this trade flow for the following reasons: First, we are fortunate to have detailed data on the flows of merchandise trade between Ireland and the United Kingdom. This information can be linked to the input-output tables of each country, which are comparable at a classification level of forty-seven sectors. We also have detailed and reliable estimates of Irish factor endowments.' Secondly, Irish trade with the United Kingdom forms a large part of her total trade (70 per cent of merchandise exports, and 50 per cent of merchandise imports in 1964). Exports from individual Irish sectors of production frequently account for a large share of sector output, while imports generally form a high proportion of the output of the domestic sector with whose products they are competing. Thirdly, the Irish economy is a small tradedependent economy whose exports have a large primary commodity content. The composition of its trade with its much larger and industrialised trading partner may not be untypical of the position in which so many developing countries find themselves with respect to their more advanced trading partners. It is worth emphasising that the small trade-dependent economy is typical of the great majority of countries. We begin with an empirical test of the Ricardian hypothesis of comparative advantage in its classical two-country, multi-commodity formulation. In the second section of the paper, we present the results of a number of tests concerned with hypotheses about factor proportions. The third section examines the influence of natural resources, and the paper concludes with an account of the role of trade restrictions.

E CONOMIC theory can be regarded as consisting of a number of models designed to explain economic phenomena and to yield predictions for the future. Any choice among alternative models should be based on their explanatory valuea model (or hypothesis) can be regarded as superior to another if it better explains actual phenomena and it is more helpful in predicting future events. The theory of international trade abounds in theoretical models, some of them complementary, others conflicting. Alternative approaches towards explaining the causes of international specialization are followed, for example, by classical economists on the one hand, and by Heckscher and Ohlin on the other. While the hypothesis advanced by the former presupposes the existence of inter-country differences in production functions, the latter assume identical production functions and qualitatively identical factors of production in the trading countries and attribute international specialization to differences in factor endowments. The empirical testing of the Heckscher-Ohlin hypothesis by Leontief led to inconclusive results, and the interpretations and explanations given to the Leontief paradox have demonstrated that the assumptions of this model require modification.' In the present paper, we will not attempt to test the Heckscher-Ohlin hypothesis, but will rather inquire into the validity of the classical model. According to the original formulation of the classical theory, comparative advantage based on relative productivity differentials determines international specialization. It has subsequently been realized that inter-country differences in the wage structure and in the capital-labor ratios of various industries may compensate for productivity differentials; a country possessing a relative productivity advantage in a particular industry may still import the commodity in question if it paid relatively higher wages and/or had higher capital costs per unit of output in that industry.2 Still, the defenders of classical theory among others, Taussig expressed the opinion that the latter factors are not sufficiently important to warrant significant changes in the trade pattern as determined by relative differences in productivity.3 Let us adopt the following notation: C= unit cost A = labor input per unit of output W wage rate T ratio of capital plus labor costs to labor costs Subscripts I and II refer to country I and country II, respectively. Capital letters refer to commodity X, small letters to commodity Y. The modified classical hypothesis can now be written: If A, a, < , (I) All all it is likely also that CI CI , , (2) CIw CIl when the latter exDress'ion is equivalent to * This paper was prepared during the tenure of a research grant from the Economic Growth Center at Yale University in the summer of ig6i. The author wishes to express his appreciation to Marnie Mueller who has cheerfully borne the burden of data collecting and computations and also made helpful comments on an earlier version of the paper. Further thanks are due to Michael Lovell for valuable suggestions and criticism. 1 W. W. Leontief, "Domestic Production and Foreign Trade: The American Capital Position Re-examined," Economia Internazionale, (February 1954), 9-38; "Factor Proportions and the Structure of American Trade: Further Theoretical and Empirical Analysis," this REVIEW, XXXVIII (November I956), 386-407. Also, P. T. Ellsworth, "The Structure of American Foreign Trade: A New View Examined," this REVIEW, XXXVI (August I954), 279-285; Stefan Valavanis-Vail, "Leontief's Scarce Factor Paradox," Journal of Political Economy, LXII (December I954), 523-528; N. S. Buchanan, "Lines on the Leontief Paradox," Economia Internazionale (November I955), 79I-794; and the discussion in the supplement to the February I958 issue of this REVIEW, by Stefan Valavanis-Vail, Romney Robinson, G. A. Elliott, Beatrice Vaccara, and W. W. Leontief, III-I22. 2 For references, see Jacob Viner, Studies in the Theory of International Trade (New York, I937), 493-5I2. 'F. W. Taussig, International Trade (New York, I927), 43-68.

T HIS paper contains a model that emphasizes the intimate connection between interregional trade and the location of economic activity. The author has blended input-output and linear programming techniques in order to achieve substitution and optimization within a general equilibrium framework. What emerges is a multi-region, multi-commodity, empirical study in comparative advantage. To the author's knowledge, it is the first such study. The Census regions of the United States are the areas analyzed. However, the model can be applied to most groupings of regions for which transfer costs rather than artificial restrictions are the major impediments to trade. It also seems likely that a related approach could contribute to understanding the problems of adaptation which confront members of the European Common Market and other contemplated economic unions. As mentioned above, the model synthesizes two approaches to interregional analysis: linear programming as applied to transportation problems, and regional input-output methods. These two techniques have been applied to quite different problems in the past. Three things are taken as given in the typical linear programming transportation study: (i) quantities of a specified good that are available at a number of originating points; ( 2) quantities of the good that are required at a number of destinations; (3) the cost of transporting a unit of the good from each origin to each destination. The problem is to find a network of trade which will satisfy the requirements with a minimum total expenditure on transportation. Thus, the transportation model concentrates on an individual good and sDecifies nothingz so far as interindustry relationships are concerned. It begins with known regional production and consumption and determines the network of trade for a specified good. Regional input-output techniques emphasize the interconnections between industries. Their aim is to determine outputs and requirements of all goods in all regions. To accomplish this, these studies have found it necessary to make assumptions regarding patterns of trade. In one way or another they have treated trade patterns as a datum. It is precisely this aspect of regional input-output analysis that is changed in the present study. Trading patterns as well as regional outputs and requirements of all goods are determined. The model involves the introduction of alternative production techniques and substitution into input-output analysis. This substitution takes place between regions. However, the model can be adapted to permit substitution between industries and between different technological layers of the same industry. The paper is divided into three sections. The first contains a description of the basic model. The second contains a brief explanation of the data and computational difficulties and how these difficulties were overcome by making adjustments in the model. The final section contains some of the empirical results and an analysis of these results. Thus, the first section will help the reader to comprehend more readily the empirical analysis and the reasons behind some of its restrictive assumptions. It also brings to light certain important issues which the empirical analysis must ignore. The second section, on the other hand, will help the reader to understand the process whereby the conceptual scheme was converted into an empirical study.

THIS paper was originally intended to be a general survey of econometric work in the field of international trade. I decided to concentrate my attention on studies relating to the price mechanism mainly because I believe that the nations of the world have learned the bitter lesson of the I930's. Gone, I believe, is the passive or even perverse behavior of monetary and fiscal authorities which permitted the great slump of the I930's to occur and to be transmitted from country to country through the international multiplier mechanism. In its stead are a determination in each country to prevent occurrence of an initiating slump and an international effort, institutionalized in the International Monetary Fund, to lessen the degree to which balance of payments difficulties will frustrate the independent pursuit of full employment policies by individual countries. If major cycles do not occur in important countries, the main changes in international demand that will occur in the future are likely to be caused by shifts in the pattern of comparative advantage among relatively fully employed economies. These shifts will cause balance of payments difficulties for some, but strong efforts will be made to prevent adjustment through declining incomes. Adjustment there must be, however; and, if income adjustment is ruled out, the price mechanism or trade restrictions, or both, must be called into play. The important works of Polak and NeisserModigliani,1 while providing highly valuable descriptions of the income adjustment mechanism as it worked in the i930's, do not afford very fruitful insights into the price mechanism. Only a small fraction of their estimated price elasticities of import demand, or of the demand for a country's exports were statistically significant. And most of the estimates were numerically small, those for import elasticities being typically less than o.s and those for export elasticities being typically less than i.o. There are a number of reasons why measurement of price elasticities from interwar time series data has proved so difficult.2 i. Income fluctuations so dominated the interwar picture that the influence of price movements is hard to isolate. 2. The method of estimation used (least squares regression of quantity on price and income) biases the estimates toward zero. 3. Use of index numbers of prices and quantities for imports and exports in periods when the price movements of the components are not roughly parallel does not usually provide the sort of estimates that are relevant for judgments on the international price mechanism, during the normal workings of which (as in a devaluation by a country or group of countries) price movements tend to be parallel. 4. Price elasticities tend to be higher in the long period than in the short, and time series analysis over relatively short periods thus does not fully reflect the long-run effectiveness of price changes. The above weakness, recognized by both Polak and Neisser-Modigliani, warn us against accepting such estimates at face value. Yet no listing of tendencies toward downward bias can be taken as proof that the elasticities are in fact large. For this we need evidence, not just arguments. The search for appropriate evidence is not NOTE: This is an abstract of the paper originally presented, which was published in the December I957 issue of the Journal of Political Economy. I have attempted within the limited space allotted to keep the main thread of the story intact. I have eliminated space-consuming tables, mathematical derivations of formulas, and detailed discussion of some pieces of evidence. 'J. J. Polak, An International Economic System, University of Chicago Press, I953. Hans Neisser and Franco Modigliani, National Incomes and International Trade, University of Illinois Press, I953. 2 See Guy H. Orcutt, "Measurement of Price Elasticities in International Trade," Review of Economics and Statistics, May 1950, pp. II7-I32; and Arnold C. Harberger, "A Structural Approach to the Problem of Import Demand," American Economic Review, May I953, pp. I48-I59.

* The author would like to thank the Bureau of Business and Economic Research of Georgia State University for the time made available to finish this paper. Also, he would like to thank Professor Charles P. Kindleberger for his comments on an earlier draft as well as a reviewer of the Southern Economic Journal for his comments. 'As Professor Chipman [2] observed, Edward West stated as early as 1815 "one of the great classical laws, well-grounded empirically in the observed tendency in the eighteenth and nineteenth centuries for manufactures to fall in price relative to foodstuffs,... to the effect that agriculture was characterized by diminishing returns, and manufacturing by increasing returns." 2See references: [1], [2], [3], [4], [9], [10]. 8Thus, Professor J. E. Meade assumes "either that the economies of scale are external to the individual firms and that there is a system of taxes and subsidies which equates price to marginal social cost in each competitive industry, or that the economies of scale are internal to large monopolistic firms and that the State controls each industry in such a way that it produces up to the point at which the price is equal to the marginal social cost of production" [8, 33]. On the other hand, Murray C. Kemp [5, 111] makes the assumption "that all external economies to the firm are...of equal severity in both industries, in the sense that the ratio of marginal private cost to marginal social cost is the same in both industries." Essentially the same assumption is also made by R. C. O. Matthews [7]. It the purpose of the present paper to develop an admittedly simple model incorporating i creasing returns in a rigorous fashion. The assumption that the marginal rate of transformation (MRT) reflects relative prices will be dropped. Therefore, the analysis of increasing returns will have to be different from that of constant returns whether the PPF is convex or concave.4 Let us first look at a closed economy consisting of two industries which use a single homogeneous primary factor of p oduction, called labor-existing at a fix d quantity (L) inelastically suppliedand produce commodities Q, and Q2 respectively. The two industries are respectively subject to constant returns and increasing returns due to external economies,5 a necessary assumption for the existence of pure competition. Finally, assume that the production of one unit of Q1 requires exactly one unit of labor.

Following a brief introduction the second section of this paper analyzes Brazil's policy of import‐substituting industrialization (ISI), as it relates to a number of variables suggested by economic theory. The third part investigates the inter‐industry structure of Brazil's protection as it relates to the country's comparative advantage in manufactured goods. Finally, the concluding section takes up certain policy implications suggested by the previous analysis.

The recent literature on the theory of tariffs and trade restrictions has emphasized the optimality of free trade policies for both developed and develop¬ing countries. There are exceptional cases in which trade restrictions can be justified—when, for example, a country has monopoly power in trade or when certain "second-best" conditions are met.1 In general, however, it is believed that a country which imposes restrictions on its trade suffers a decline in real income. A number of studies for both developed and developing countries have estimated the economic benefits that would accrue to these countries from the elimination of all trade restrictions.* The purpose of this paper is to provide a method for measuring the economic benefits that a country would receive as the result of the elimination of a country-specific restriction while maintaining all restrictions applying to commodities. Methods of measuring the static gains to a country removing commodity restrictions are already well known and need no further elaboration. The elimination of a country-specific restriction on trade, however, presents a slightly different problem of measurement since the liberalization may affect only one portion of the country's trade and give rise to foreign exchange savings as well as the familiar gains from reduced producers' inefficiency and increased consumers' surplus.

The leitmotif of this paper is the strong, rising and alarming trend of deficits in Australia's balance of payments current account, which makes it overwhelmingly important to increase exports. Market promotion, substantially the existing method, will not do the job in a world with politically set up trade barriers. Multilateral political negotiations about the removal of the trade barriers within the G.A.T.T. system are unlikely to help for Australia's range of exports. Therefore Australia must enter into bilateral negotiations with any likely important customer, the most obvious one being Japan, to lower trade barriers on a bilateral basis, and this under the existing international agreements can be done only under the guise of a partial free trade area.

IT HAS BEEN CORRECTLY POINTED OUT that slaves were a good investment for southern planters, yielding returns commensurate with other contemporary investment opportunities.1 But many authorities are agreed that, although profitable, slavery was an impediment to the industrial development of the South because it absorbed the capital which otherwise might have been diverted to industry.2 This conclusion, however, not only ignores the probable comparative advantage of agriculture, and the ability of wildcat banks to create "involuntary savings," but involves failure adequately to examine the character of the South's investment in slavery and the nature of the loss occasioned by emancipation. It is the purpose of this paper to explore further the southern investment in slaves.

The paper is written to answer two questions. First, should a system of direct compensation payments be introduced for the improvement of the EEC's Common Agricultural Policy? Second, how to define the DCP-system in order to make its principle practicable in a way which makes it on the one hand acceptable to those who are farming from the beginning of the system as well as for those entering later on, and on the other hand acceptable to the other part of the population and to the governments concerned. It appears from the analysis of the first question that the purpose of the present market and price policy has to be changed fundamentally. What it should do is to ensure a level of producer prices for basic agricultural products which is consistent with a situation of equilibrium concerning a rehabilitated world market, instead of trying, as at present, to ensure prices for farm products which as far as practicable result in a reasonable degree of income parity for agriculture in its present form. Newly designed market and price regulations should therefore create within the member countries of the Common Market prices for agricultural products being equal to ‘normalized’ prices of a future world market which would not be distorted by overprotection of national or ‘common’ markets. The as yet unknown price level is thought to be approximated adequately by reducing the present level of EEC prices for basic farm products by about 20%. One of the functions of the direct compensation payments will be to provide for the immediate loss of income evolving from such a reduction in agricultural prices. The analysis of the second question shows that it is possible to design an adequate system of direct compensation payments. Adequate, because it reconciles the interest of the present and the coming farmers to the interest of society at large concerning food supply, environmental values and costs both. The DCP-system will not give rise to insuperable exchequer problems. It provides ample time for a reorientation of agriculture according to the patterns of comparative advantages within the Commom Market as well as in the world at large.

The theory of comparative advantage has two facets which should be clearly distinguished: 1) positive; and, 2) welfare. The former relates to the formulation of hypotheses to explain the pattern of trade; the latter concerns the advantages to be derived from the possibility of various forms of trade1. This paper examines the status of the welfare propositions of trade theory in relation to 1) some features of underdeveloped countries; and, 2) the phenomenon of growth.

T HE purpose of this paper is to assess the relative importance of the various factors that influence the commodity composition of the foreign trade of the United States. The concern is with the composition of exports and imports as of a given moment in time rather than with long-run influences and tendencies. The search for influential factors is carried on first within the framework of the law of comparative advantage. It seems clear that differences in relative wages, which have frequently been stressed by the protectionists, are not generally a controlling factor. There is some evidence, however, that differences in relative output per worker are more important, particularly in determining the shares of third markets enjoyed by two countries producing similar products. The role of capital-labor scarcities, whose importance has been stressed by Professor Wassily Leontief, is also examined. It is argued that Leontief's findings that United States exports have a higher labor content and a lower capital content than United States imports can be explained better and more simply by the availability factor. In other words, goods that happen to

I IN the nineteenth century foreign trade played a vital role in the development of economies. While, on the one hand, it destroyed the traditional industries in countries like those of Asia, it opened up possibilities of expansion of a different sort through the growth of demand for primary products. However, since the turn of the century, even primary demand has not been keeping pace with the growth of advanced, industrial economies, and, therefore, this mechanism of growth transmission is now in, what Professor Nurkse has called, 'comparatively low gear '.2 This is reflected today in the difficulty of many primary producing countries (excluding, of course, 'the oil countries') in even maintaining their export earnings in a world of expanding trade. An alternative pattern of economic expansion is provided by the possibility of industrial exports in which some primary-producing countries could have a comparative advantage. These industries, however, traditionally form a substantial part of the economies of the advanced countries and, therefore, apart from the genuine difficulties which the new-comers may have in competing with the high-quality products of the former, there is also involved a problem of adjustment on the part of the advanced economies. Many of these countries, faced with competition in these products, have in fact tended to give protection to their traditional home industries. As Professor Nurkse has concluded, 'the development needs of the backward economies may demand a faster rate of adaptation than is likely to be practicable in the advanced economies '. The case for the industrialization of primary-producing countries, oriented primarily to their home markets, has been recognized on these grounds. We shall not go farther into this question but assume that a

T HE so-called strong-factor-intensity hypothesis is a crucial element in both the Heckscher-Ohlin theory of comparative advantage and the ancillary factor-price-equalization theorem which was deduced by Heckscher (1919) and developed fully by Samuelson (1948, 1949). In view of its central role in these two theories, it is important to have some notion of the empirical content of the hypothesis. Accordingly, this paper provides an empirical test of the hypothesis among U.S. Census regions. It seems that a test based upon regional, rather than international,' data is preferable on at least two grounds (see Sec. III).

This paper classifies “comparative advantage”; cases. Each distinguishable approach to comparative advantage case construction involves a distinct rationale for policy change. The affirmative obligations in a debate cannot be discerned by whether the case is purported to be “need‐plan”; or “comparative advantage.”

In recent years, the relationship between capital-labor substitutability and comparative advantage has received some attention in the literature on international trade. Empirical evidence seems to indicate that low-wage countries tend to have comparative advantage in those goods that have low capital-labor substitutability (Arrow, Chenery, Minhas, and Solow, 1961, p. 243; Minhas, 1962, pp. 152-53; Hodd, 1967, pp. 20-29). The purpose of this paper is to demonstrate, with the aid of simple geometry, that (1) a high degree of factor substitutability has an asymmetrical effect on production costs in that it tends to result in a lower cost in the high-wage country than in the low-wage country, and (2) this asymmetrical effect is attributable to the fact that the international differential in the prices of labor is substantially larger than the differential in the prices of capital. We shall first postulate a framework that is crucial for our analysis. Let us assume that there are two countries: one, a relatively capital-rich and high-wage country, A; and the other, a relatively labor-rich and low-wage country, B. Let us further assume that in country A the price of labor, w, is $5,000 per man-year and the price of capital, r, is 10 per cent per annum; and in country B the price of labor is $1,000 per man-year, and the price of capital is 20 per cent. It may be noted that the ratio of prices of labor is larger than the inverse ratio of prices of capital. Algebraically, WAIWB > rBIrA. If we divide the former by the latter, we obtain what may be called the "coefficient of inverse factor-price differentials," which will be denoted by the letter D. In the above situation, the value of this coefficient would be

The proposition that a country’s inhabitants will, or at least could, gain from participating in free international trade as opposed to remaining in a state of autarky, has long been believed, although only sketches of rigorous proofs have been supplied, notably those of Samuelson (1939, 1962), Kemp (1962), and Kenen (1957). 1 In this paper we shall pursue the question by developing the concept of a social utility function first formulated by Samuelson (1956). Full generality will be sacrificed in the interest of simplicity. We shall limit ourselves to the general framework of the Heckscher-OhlinSamuelson model, in which the factors of production are in fixed aggregate supply within countries, and are perfectly mobile among industries and without occupational preferences (cf. Samuelson (1953)). The production possibility set for the n final commodities which are assumed freely tradable internationally *,t zero transport costs isI assumed to be convex, and production is assumed to be carried out efficiently. Consumer demand is assumed generated by continuous, strictly monotone, and strictly convex preference orderings, which are represented by continuous concave utility functions Ui which attach zero utilities to zero bundles. We consider a class # of social welfare

THE tradition in microeconomic theory is to take wants and technology as givens and to proceed from these to deduce from the assumption of scarcity testable implications and normative propositions. These assumptions, together with variety in tastes and abilities and differences in the number of rivals, give rise to most economic laws. In this way, laws such as those that relate to demand, comparative advantage, equalization of factor returns, and the relationship of price to cost are deduced. The role of property rights is not explicitly dealt with in this approach. But imbedded in the whole process is a third class of given datum. There must be assumed a set of social arrangements which define ownership. In this paper, I will examine some aspects of property rights that bear both on issues to which we have been led by the traditional approach and to some which we have ignored because property rights have not been treated explicitly. An example will make clear the necessity of assumptions about social arrangements. Consider the two economic laws which state that (1) demand curves are negatively sloped and that (2) queues will tend to be eliminated by a price that is free to fluctuate. The first law is true even if ownership does not include the right to buy or sell; it does not even depend on the existence of exchange. Thus, from the first law it follows that an increase in the unpleasantness of my neighbor (an increase in the price of association) will diminish the frequency of my visits. Nothing is bought or sold but the law holds true.

Ronald Jones, in his seminal paper (1957) on Heckscher-Ohlin theory, has argued that, for the case of two countries, two factors, and several commodities, the Heckscher-Ohlin theorem would remain valid in the following weak sense: "Ordering the commodities with respect to the capital-labor ratios employed in production is to rank them in order of comparative advantage. Demand conditions merely determine the dividing line between exports and imports; it is not possible to break the chain of comparative advantage by exporting, say, the third and fifth commodities and importing the fourth when they are ranked by factor intensity" (p. 85). It is easy to show, however, that this proposition, although correct for the case where factor prices are not equalized, is untenable as literally stated. When factor-price equalization is realized, a not unimportant case, a variety of crisscrossings are possible.1 Thus, let there be two countries, I and II, with endowments of two factors, K and L, as shown in figure 1 by the two rays from the origin, such that Country I is K-abundant and Country II is L-abundant, in the physical sense. Let us also assume that there are four commodities, w, x, y, and z, all of them characterized by linearly homogeneous production functions with the standard restrictions. We also assume that the strong Samuelson factor-intensity rankings obtain, such that the four commodities can be ordered according to their K/L ratios unambiguously. Let the K/L ratios decline successively for commodities w, x, y, and z. Using the Lerner-Findlay-Grubert technique, we can now take the case

This paper is based on the observation that while agricultural productivity in less developed countries whose comparative advantage seems to lie in agriculture is growing slowly relative to agriculture in developed countries. In order to explain this phenomenon, we have established a hypothesis that industrialization promotes agricultural development by improving the conditions of supply of modern inputs to agriculture. This hypothesis is tested on international comparisons and the analysis of Japanese experience.