On the Heckscher-Ohlin Analysis and the Gains from Trade with Profit-Maximizing and Labour-Managed Firms

This paper is concerned with the pattern of trade and the gains from trade between the profit- maximizing and labour-managed countries in a general equilibrium setting of the Heckscher-Ohlin type. Thus all the markets are assumed to be perfectly competitive. The production technologies are, however, assumed to follow decreasing returns to scale with fixed costs. Then it is shown that the Heckscher-Ohlin theorem on the pattern of trade prevails but one country may lose from trade because of the existence of the fixed costs.