International Trade In Capital Goods

International trade theory has been dominated for many decades by models that eitherexplicitly, or implicitly evade altogether the questions of the heterogeneity of capitalgoods, and the issue of distribution as a consequence of international trade. The capitalcontroversies of the 1960's have had inevitable implications for neoclassical tradetheories that were based on the notion of capital as non-produced endowments whosequantity is defined independently of the prices of good. Four kinds of developments havetaken place in the literature since then.(1) Steedman1 and his co-authors wrote a series of papers to show that if thedistinction between capital as the value of heterogeneous capital goods and thecapital goods themselves is made, as it ought to be made, many of the standardpropositions and theorems of modern trade theory would either fail to hold orwould, at the very least, have to be heavily qualified.(2) Dornbusch, Fischer & Samuelson2, Shiozawa3 and others, on the other hand, developed the Ricardian model and extended it to several commodities includingtrade in intermediate goods. Specifically, they showed that with internationaltrade in intermediate goods it is no longer possible to solve the price system ofany country in isolation from the price systems of its trading partners; the pricesystem becomes international in nature.(3) Eaton and Kortum4 developed a model of multi-country multi-commodity tradewhich allowed trade in intermediates but assumed quite restrictively that thepattern of absolute and comparative advantages across countries and commodities