Bela Balassa (1963), in his article entitled “An Empirical Decision,” works to provide an empirical demonstration of the classical comparative cost theory. Balassa is an economic theorist looking at many of the different theoretical models of international trade; he discusses Heckscher and Ohlin, citing that they are two of the primary classical theorists in this field. Though Balassa does not wish to tackle the Hecksher-Ohlin hypothesis directly, he does have questions regarding the validity of the classical model of comparative cost theory (1963).
Balassa first looks at the original theory itself, and starts out by modifying the hypothesis based on new factors in the field of international trade. He presents the modified classical hypothesis for review, including a key which allows the individual to be able to understand the mathematical theory as he has written it (1963), and provides several applications of this modified theory in order to show that it is functional.
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"An Empirical Decision".
Looking back over the results of this empirical study, Balassa determined that there was a “high correlation between productivity ratios and export shares” and that the introduction of variables into this formula provides only a slight modification to those results (1963). Balassa is able to conclude that his modified hypothesis is fully functional and testable, showing a direct correlation and conformity with the classical hypothesis of comparative cost theory, showing that though the theory may have needed updating, in spite of this, once updated, it is still able to hold its place and position in modern economic theories of international trade, though certain additional factors, such as transportation costs and commonwealth preferences must be taken into account in order for this to be a truly usable theory in the modern day and age (1963).
