Trade

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Natural resource and the structure of Australia's foreign trade
(2023) Chatterjee, Srikanta
The factor proportions model of international trade hypothesises that a country would export a product which is intensive in the country's relatively abundant factor of production. However, once the model is extended beyond its original two-factor framework, the establishment of a country's factor endowment becomes somewhat blurred. Following Leontief's celebrated paradox relating to the structure of US foreign trade, attempts have been made to re-examine the factor content of a country's net exports, i.e. its exports minus its imports. A country's net exports must equal its production less its consumption. Its production embodies its own factor endowments, while its consumption embodies a fraction of world factor endowments equal to its share in world income (the homotheticity assumption). Thus, if a country is abundantly endows with a particular factor, in the sense that its share of the factor exceeds its share of world income, its exports must embody more of that factor than its imports.