A LTHOUGH considerable progress has ,Albeen made analytically and empirically within the last few years in better understanding the factors that determine the commodity composition of a country's international trade, there still remain many unresolved questions. There is widespread agreement, however, that a simple two-factor (capital and labor) version of the Heckscher-Ohlin theory is inadequate. Such assumptions of this traditional theory as identical production functions among countries for identical commodities, the homogeneity of labor supplies, constant returns to scale, and the international immobility of productive factors seem to be sufficiently violated in the actual world so that relative proportions of capital and labor are but one of several factors influencing the commodity pattern of trade. Nevertheless, the simple factor proportions theory has not been thoroughly tested against the trade patterns of large numbers of countries.1 Perhaps the high proportion of seemingly paradoxical results from tests made on the trade of a limited number of countries is due to the nonrepresentativeness of the sample selected. The comparatively few country tests are also insufficient to indicate clearly just what the relative importance and degree of generality is of elements other than physical capital and labor as determinants of the commodity structure of trade, e.g., research effort providing technological leadership to a country and relative supplies of human capital. Another subject on which there is inadequate knowledge concerns the determinants of the commodity pattern of direct foreign investment. Are they the same as those that determine commodity trade? Moreover, what is the relationship between trade and direct foreign investment? The purpose of this paper is to present additional empirical findings that relate to these questions in the trade and investment area. More specifically, the value of capital per worker that is embodied in exports versus import-competing production is estimated for some 35 countries using capital/labor industry coefficients and sectoral input-output coefficients based, alternatively, on United States, European Economic Community (EEC), and Japanese production data. These direct and indirect factor content ratios are then compared with a measure of the relative capital/labor endowments ratios in the countries. Utilizing U.S. measures, the relative importance of human capital, economies of scale, and research and development activities is also ascertained. The analysis of direct foreign investment is based on U.S. data and consists of relating such industry characteristics as capital/ labor ratios, skill and educational levels and the height of tariffs and transportation costs that protect a domestic industry to the ratio of direct foreign investment to total investment in an industry.

Robert E. Baldwin, The Commodity Composition of Trade: Selected Industrial Countries, 1900-1954, The Review of Economics and Statistics, Vol. 40, No. 1, Part 2. Problems in International Economics (Feb., 1958), pp. 50-68

A basic relationship of the standard general equilibrium trade model relating product-price changes to factor-price changes is used—together with other economic relationships based on this model—to investigate empirically the importance of changes in trade, technology, and factor endowments in accounting for the shifts in relative wages of less-educated workers compared to more-educated workers from 1967 to 1996. In the early part of the period when wage inequality decreased, the dominant explanatory factor seems to have been a relative increase in the supply of highly educated labor. However, since the late 1970s, none of the three economic forces considered can alone account for the observed changes in relative wages, prices, outputs, net exports, and factor-use ratios. In particular, both education-biased technical progress that was greater in industries that intensively used more-educated labor and increased import competition in industries that intensively used less-educated labor seem to have played important roles in bringing about the increase in wage inequality during the 1980s and 1990s.

A UNIQUE feature of the Kennedy Round of the General Agreement on Tariffs and Trade (GATT) Negotiations (1964-1967) was the use of the technique of reducing tariffs. Under a linear approach each participant agrees to make a uniform across-theboard percentage cut in import duties, subject only to a bare minimum of exceptions and to the condition that the country achieves overall reciprocity. This approach was adopted in an effort both to reduce the time and effort involved in traditional item-by-item negotiations and to achieve a deeper average duty-cut for all participants. In prior negotiations under the GATT, the bargaining technique was essentially bilateral. Request and offer lists were exchanged between all pairs of countries and bargaining then proceeded on a two-by-two basis. In order to make this type of negotiation feasible, the so-called principal supplier rule was followed. A country's offer list to another country covered only those items for which the other country was the principal or at least, a very important import supplier.1 This procedure minimized the problem of conducting simultaneous negotiations on the same item by different country teams. At times during the negotiations, however, information concerning concessions tentatively agreed upon in the independent bilateral negotiations was made available to all pair-wise teams so that each might evaluate the indirect effects of the other negotiations on its bilateral balance of concessions. Finally, when each pair of countries had reached a mutually satisfactory balance of concessions, the list of offers by a country to each other country was combined into a single tariff reduction list that applied to all countries. Just what constituted a satisfactory balance of concessions or reciprocity was never openly defined, but it came to mean that a country would achieve an approximately equal increase in exports from the concessions it obtained as the increase in imports from the concessions it granted.2 The main concern of negotiators was to achieve this reciprocity on the total trade of their country with the rest of the world. However, since the negotiations were conducted mainly on a bilateral basis, the notion of reciprocity also tended to dominate the pair-wise negotiations between countries. As became increasingly apparent through successive GATT negotiating rounds, following the principal supplier rule and imposing a condition of approximate bilateral balance for changes in the volume of trade considerably limited the set of feasible total increases in exports and imports. The early hopes of many Kennedy Round negotiators that most of the difficulties connected with the item-by-item, bilateral negotiating technique would be eliminated by following a linear-cut rule proved to be much too optimistic. Some industrial countries, namely Canada and Australia, as well as all the less developed countries did not accept the linear rule. More disappointing, however, was the reluctance of most major countries to cut agricultural duties on a linear basis and the insistence of the European Economic Community (EEC) on a special rule to handle significant disparities in tariff rates of various countries on the same item.3 Lists of exceptions for certain countries also proved to be larger than was hoped for initially. Once it became apparent that reciprocity could not be achieved by bargaining on a

Robert E. Baldwin, R. Spence Hilton, A Technique for Indicating Comparative Costs and Predicting Changes in Trade Ratios, The Review of Economics and Statistics, Vol. 66, No. 1 (Feb., 1984), pp. 105-110