This introductory chapter develops basic analytical tools that are commonly used in trade and protection theory. It will also serve as a compendium of some of the better known results in the field, which will be useful for reference in later chapters. Much of this material is familiar to students who have completed a course in the pure theory of international trade; such students may find a cursory reading of the chapter to be adequate.

The main model to be considered here was originally formulated by Swedish economists E. Heckscher and B. Ohlin, with a view to explaining the pattern of trade between countries. It is perhaps ironic that, although the model has had limited success in explaining the determinants of trade, subsequent developments (most notably by Paul Samuelson) have made it a popular general equilibrium framework for analysis of impediments to trade in competitive markets. On the other hand, it is less easily adapted to analysing situations in which markets are not perfectly competitive and in which production may exhibit economies of scale. In such cases (which we consider in Chapters 5–7), it is often more expeditious to employ a partial equilibrium framework. Nevertheless, the two-sector model presented in this chapter serves as a useful reference point for our analysis.

Our approach to presenting the basic model is necessarily heuristic, using diagrams and verbal intuition wherever possible. More advanced students may want a more rigorous treatment. For these students, Appendix 1 contains a full mathematical specification of the model together with proofs of the main results obtained in this chapter.