'Part of the reason governments are timid about intervening in what is essentially a private sector affair is the view that there is no apparent market failure. This is not correct. There is ample economic evidence that agglomerations of successful firms breed further success – that positive externalities exist. If left to its own devices, the market might get there, but it may take 100 years. Do we have this long?"
No market failure therefore no need for any form of dirigisme. So, let's be happy with whatever the Factor Endowment Theory can determine for us.
Relevance in the Contemporary Global Economy Despite its limitations, the Factor Endowment Theory remains highly relevant, especially in explaining trade patterns in the context of globalization. For example: Developing countries like Bangladesh and Vietnam have leveraged their labor abundance to dominate the garment industry. Resource-rich nations like Australia and Brazil thrive in the export of raw materials such as coal and iron ore. Capital-abundant economies like Germany and the United States lead in manufacturing high-tech machinery and pharmaceuticals. However, the rise of global value chains, where production processes are spread across multiple countries, challenges the traditional notions of factor endowments. For instance, a smartphone may be designed in the United States, assembled in China, and use components sourced from various countries. This complexity requires a broader view that integrates the H-O model with modern trade dynamics.
