A two level utility functuon and a stepped supply funtion in a general equilibrium model of trade

Abstract

The Heckscher-Ohlin model assumes constant returns to scale, factor mobility across sectors, perfect competition in the domestic and foreign markets and no dichotomy between domestically produced and imported goods. In this framework, resource allocation is determined by factor rentals being equalized across sectors. Clearly, this implies that the model is long-run in nature and comparative advantage in this log-run nature and comparative advantage in this long-run equilibrium determines the optimal pattern of trade. The significance of this in terms of multi-sectoral model building can be seen in the context of an important contribution by Samuelson.