International Trade Theory

Heckscher-Ohlin

Heckscgher-Ohlin model created as an alternative to the Ricardian model of basic comparative advantage. Leaving aside the complexity of a much more complicated this model does not prove a more accurate prediction. However, from a theoretical point of view it does not provide an elegant solution using neoclassical price mechanism into international trade theory.

This theory argues that patterns of international trade is determined by differences in factor endowments. It predicts that countries will export goods that make intensive use of abundant factors and will need to import goods that will use scarce local factors intensively. Empirical problems with the HO model, known as the Leontief Leotief, which opened in empirical tests by Wassily Leontief who found that the United States are more likely to export labor-intensive goods than to have capital adequacy.
[edit] Specific Factors

In this model, the mobility of labor between industry and the other one is possible when the capital does not move between industries in a short period. Specific factors which refers to the provision of short-term specific factors of production, such as physical capital, is not easily transferred between industries. The theory suggests that if there is an increase in the price of an item, the owners of production factors specific to that good will profit in real terms. In addition, owners of opposing specific factors of production (such as labor and capital) tend to have opposing agendas when lobbying for controls over immigration of labor. Conversely, both owners of the benefits of capital and labor in real terms from an increase in capital endowment. This model is ideal for particular industries. This model is ideal for understanding income distribution but not to the pattern of trade.
[edit] Gravity Model

The gravity model of trade presents a more empirical analysis of trade patterns better than the theoretical model above. Gravity model, in its basic form, predicts trade based on the distance between the state and the interaction between countries' economic sizes. The model mimics the Newtonian law of gravity which also considers distance and physical size between two objects. This model has proven to be strong empirically by econometric analysis. Other factors such as income level, diplomatic relations, and trade policies are also included in the larger version of this model.