Trade Between Countries with Radically Different Preferences

Abstract

We examine the role of radical international differences in preferences in determining patterns of international trade, given that the trading countries share a common technology and identical factor endowment ratios. It is characteristic of our model that the equilibrium autarkic commodity price ratios are unique and negative and that there is a unique positive equilibrium free-trade price ratio, implying that the positive equilibrium free-trade price ratio is not bounded by the equilibrium autarkic price ratios. This finding contrasts sharply with the familiar Torrens-Ricardo and Heckscher-Ohlin propositionspreferences