THE THEORY OF HETEROGENEOUS CAPITAL IN INTERNATIONAL TRADE: COMPLEMENTARITY AND FACTOR INTENSITY REVERSALS IN A WORLD TRADE MODEL WITH MANY CAPITAL GOODS

This paper is designed to show that when there are complementary input pairs in a production system in which there are heterogeneous capital goods in a model of world trade, factor intensity reversals are possible. It also demonstrates that if the number of produced goods increases relative to the number of factors, factor intensity is less likely to occur. The reason given for this is that as the number of produced goods increases relative to factors, the possibilities of complementary input pairs are reduced and so also are their effects.; Simulations are used as the methodological tool in this study. A non-linear programming algorithm is used to obtain prices and output level in a general equilibrium two-country model of world trade.