Chapter 8 The role of natural resources in trade models Much of the modern long run theory of international trade derives from what has come to be called the 2 x 2 or HeckscherOhlin model of production; and the rest of the theory derives from straightforward extensions of that model achieved by the accommodation of additional factors and products and by the addition of more or less durable produced intermediate goods. In all versions of the model final goods are produced directly or indirectly by two primary or nonproduced factors of production a unit of any factor yielding its services in a given and steady flow forever. There is need of a theory of international trade that accommodates both exhaustible natural resources and the traditional Ricardian primary factors and of which the standard HeckscherOhlin theory appears as a special case. The new theory can be expected to differ in important respects from the old for in a context of exhaustible resources there are no nontrivial steady states only transitions. The assumption that resources can be extracted without cost simplifies the calculations and enables concentrating on the implications of exhaustibility as such. The canonical case in which the available processes of extraction display constant returns to scale and are independent of the amount already extracted costs of extraction make no difference to qualitative conclusions. The chapter also recognizes the historical fact that the extraction and processing of some exhaustible resources have sometimes been under the control of cartels.