Intellectual inquiry in the field of international trade is firmly rooted in an analytical paradigm: the comparison of an economy in a state of autarky relative to a state of open international trade. In the context of the Arrow-Debreu model of general equilibrium, this methodology has facilitated the formulation of some of the most fundamental theorems in neoclassical economics: the law of comparative advantage, the Heckscher-Ohlin theorem and the Stolper Samuelson theorem. Since the price is the final primitive concept in the Arrow-Debreu model, these theoretical theorems are usually formulated using goods and factor prices under autarky and free international trade. The alleged impossibility of employing goods and factor price data in autarky and free trade under the ceteris paribus assumption has been a major difficulty to empirically test these theorems. In the current research project, the PIs plan to continue their empirical analysis of the most dramatic trade liberalization in recorded economic history: Japan.s reopening to the world economy in 1859 after 200 years of self-imposed isolation. In their previous research (Bernhofen and Brown, 2004, 2005a), the investigators establish the case of Japan as a natural historical experiment compatible with the neoclassical trade model and investigate the pattern and gains from trade related to the law of comparative advantage. In the proposed project the PIs, together with a Japanese collaborator, plan to engage in a substantial data creation effort which will entail the collection of goods prices, factor prices and factor input coefficients of tradable commodities before and after Japan.s opening up to international trade. This will enable the PIs to provide new and unique tests of the Stolper-Samuelson and the Heckscher-Ohlin theorem, which are expected to make substantial contributions to the empirical international economics literature. The proposed project consists of three parts. The first part will provide the first direct test of a general version of the Stolper-Samuelson theorem. It will investigate whether factor intensity weighted changes in goods prices predict the observed pattern of changes in the prices of the corresponding factors after Japan.s opening up. The second part will provide the first direct test of the Heckscher-Ohlin theorem in its autarky price formulation. A key advantage of using autarky factor prices as a measure of relative factor abundance for a test of the Heckscher-Ohlin theorem is that it allows for unequal factor prices and technologies between Japan and its trading partners. The third part of the project will use the results from the first two parts of this project and Bernhofen and Brown (2004, 2005a,2005b) to create an account of the natural experiment of Japan that is accessible to a wide range of audiences. The PIs expect this part of the project to have a broad impact on teachers, undergraduate students and graduate students with an interest in international economic issues. This theory-guided comprehensive case study will include components designed to meet the pedagogic goals appropriate to a range of student audiences from the introductory to the Ph.D. level. The PIs will make this case study publicly available on their website. The website has the potential to engage student audiences from around the globe.
