A reversal of “competitive advantage” pattern: Heterogenization versus homogenization

Two dissimilar types of “competitive advantage (CA)” patterns are constructed. D-type is an upward-sloping CA line for labor-abundant developing countries, while A-type is a downward-sloping CA line for capital-abundant advanced countries. A reversal of CA pattern (a switch from D-type to A-type) occurs, depending on whether the capital/labor and wage/rental ratios are smaller or larger than 1. This reversal phenomenon derives from two fundamental Heckscher-Ohlin theorems. This new model is useful to analyze the different patterns of trade between the North and the South and trade within each bloc, patterns that are affected by productivity growth, exchange rate changes, and innovations.