Abstract: From the perspective of factor income, we can also make a better explanation on the current international trade division. On the basis of establishing a theoretical analytical framework of factor income differences and trade division, this paper puts forward the comparative profit principle, namely one country or region is inclined to export more products with higher factor relative gains. Through the improvement on the gravity model of trade, it conducts an empirical test on the trade data of the main export countries. The result proves that most of the export countries are in line with the principle of comparative profits, while China has the “comparative profit paradox”. The main reason lies in the factor that most Chinese sectors are located at the downstream of global value chain, participating in the international division of labor more with the form of processing trade.

Key words: factor income difference; comparative profit principle; comparative profit paradox; gravity model of trade; global value-chain.