Technological Differences and the Impact of Trade on Wages

We introduce technological differences in a Heckscher-Ohlin model and study how the technology and endowment differences interact to determine the effects of trade on factor prices. When the endowment effect is dominant in determining the autarky relative factor prices, the relative factor prices of trading countries adjust in converging directions with trade if and only if the capital-rich country has a comparative advantage in the capital-intensive sector. Adjustments in converging directions could be excessive. Relative factor prices tend to converge if the technological comparative advantage is small for given relative endowments or if the relative endowment difference is large for a given technological comparative advantage.