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We begin our study of international trade with the classic Ricardian model, which has
two goods and one factor (labor). The Ricardian model introduces us to the idea that
technological differences across countries matter. In comparison, the Heckscher-Ohlin model
dispenses with the notion of technological differences and instead show how factor endowments
form the basis for trade. While this may be fine in theory, it performs very poorly in practice: as
we show in the next chapter, the Heckscher-Ohlin model is hopelessly inadequate as an
explanation for historical or modern trade patterns unless we allow for technological differences
across countries. For this reason, the Ricardian model is as relevant today as it has always been.
Our treatment of it in this chapter is a simple review of undergraduate material, but we will have
the opportunity to refer to this model again at various places throughout the book.
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