Re-explaining Ohlin

Bertil Ohlin was dissatisfied with Ricardo’s use of only labor to explain international trade, so he introduced other inputs, such as land. In place of comparative advantage, he used input abundance and intensity to explain trade. Jones, Kemp, and Rybczynski tried to interpret factor abundance and intensity using Ricardo’s production possibility curve (PPC). Naturally, they ended up with the same comparative advantage conclusion. In addition, they overlooked a fundamental deficiency of the PPC: it can take shapes other than linear. A concave PPC completely undermines their conclusion, including that of Ricardo. This book takes a profit-maximizing microeconomic approach that successfully integrates Bertil Ohlin's insights on resource abundance and input intensity, and explicitly incorporates output price to account for trade, growth, and structural economic upgrading. Furthermore, this book challenges the Stolper-Samuelson theorem by showing that the ratio of labor and capital share always remains constant, thereby refuting the theoretical justification for protective tariffs.