Journal Article Equilibrium in International Trade Get access Bertil Ohlin Bertil Ohlin University of Copenhagen Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 43, Issue 1, November 1928, Pages 184–188, https://doi.org/10.2307/1883948 Published: 01 November 1928

It has long been recognized that commodity movements and factor movements are, to a degree, substitutes for each other in international exchange (see Carl Iverson, Mountifort Longfield, James Meade, Bertil Ohlin, John H. Williams). Yet, until recently, the dominant theory of international trade, the Heckscher-Ohlin (H-O) model, had been rather thoroughly analyzed under the rigid assumption of the immobility of factors. Only in 1957, with the publication of Robert Mundell's important article, was capital mobility in a H-O model explored. This paper presents a fuller treatment of capital mobility in the H-O model. We discuss the model under conditions of tariffs on goods flows and taxes on capital relocations. Nations may trade by exchanging goods or by exchanging their relatively abundant factors which produce those goods. We demonstrate that the substitutability between these two avenues of exchange continues to hold even under conditions of tariffs and taxes. The dynamics and equilibria are demonstrated, showing that a nation will pay for its imports either through exports of goods or through earnings on foreign-placed capital, not through both of these methods. Tariffs and tax rates will dictate which will occur, i.e., tariffs and taxes will be shown to affect the pattern of trade, not merely the quantities of commodities traded. We also correct a hitherto general and unrecognized error. We show that the levying of a tariff does not necessarily generate a relative price differential (of final goods prices) between the trading countries equal to the tariff proportion. The relative price differential will often be less than the tariff proportion, and this holds even though the good is still imported into the country. Further, contrary to previous results (see Ronald Jones 1967), we show that, generally, a tariff-cum-tax levy will not result in the complete specialization of production.