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I am just wondering whether not achieving FPE is good for world trade. My reason being that is that international trade keeps expanding until complete FPE is achieved, according to the Heckscher-Ohlin model. This means more trading so global economic growth keeps increasing so having positive chain reaction effect on the world right? I am thinking in the real-world as clearly some of the assumptions of the HO model do not hold in the real-world.

Edit: any links to good reading materials on this topic?

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  • $\begingroup$ "more trading" compared to what? Perhaps if we would achieve FPE tomorrow we would have 'maximum trade'. $\endgroup$ – Giskard Nov 6 '16 at 22:13
  • $\begingroup$ i.e. countries keep exporting and importing.Otherwise, if FPE is achieved why would a country choose to import goods if the good is the same price in its own country relative to another country? $\endgroup$ – Linsky Nov 7 '16 at 12:26
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    $\begingroup$ Doesn't complete factor price equalization imply marginal product equalization as well? If it does than this implies a maximization of global output in the same way that allocating labor and capital within a country is also maximized when all workers have the same MPL. $\endgroup$ – BKay Nov 7 '16 at 14:44
  • $\begingroup$ @Linsky In the Heckscher-Ohlin model you have equal factor prices, but as long as the countries have a different allocation of factors there will be trade, precisely because otherwise prices would differ and you would not have an equilibrium. $\endgroup$ – Giskard Nov 7 '16 at 16:59

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