heckscher-ohlin Flashcards
(15 cards)
In addition to differences in labor productivity, trade
occurs due to differences in
resources across countries.
argues that trade occurs
due to differences in labor, labor skills, physical capital,
capital, or other factors of production across countries.
Heckscher-Ohlin theory
assumptions in Heckscher-Ohlin
Model
Two-Factor Heckscher-Ohlin
Model
Two countries: home and foreign, both have the same
technology
Two goods: cloth (C) and food (F).
Two factors of production: labor (L) and capital (K).
The mix of labor and capital used varies across goods.– cloth is labor-intensive and food is capital-intensive
The supply of labor and capital in each country is constant and varies across countries.
In the long run, both labor and capital can move
across sectors, equalizing their returns (wage and
rental rate) across sectors.
If producers can substitute one
input for another in the
production process, then the PPF
is
curved (bowed).
When the economy devotes
more resources towards
production of one good, the
marginal productivity of those
resources tends to be low so
that the opportunity cost is .
high
a line representing a
constant value of production, V = PC QC + PF QF
isovalue line
Production of cloth is
relatively _ intensive,
while production of food is
relatively _intensive.
labor
capital
If the
relative price of a good increases, then the
real wage or rental rate of the factor used
intensively in the production of that good
increases, while the real wage or rental rate
of the other factor decreases.
Stolper-Samuelson theorem
Any change in the relative price of goods
alters the distribution of income.
Stolper-Samuelson theorem
If you hold output
prices constant as the amount of a factor of
production increases, then
– the supply of the good that uses this factor
intensively increases and
– the supply of the other good decreases.
Rybczynski theorem
t or f
Trade in the Heckscher-Ohlin
Model
the countries are assumed to have the same
technology and the same tastes.
t
The country
that is abundant in a factor exports the
good whose production is intensive in that
factor
Heckscher-Ohlin theorem:
The Heckscher-Ohlin model predicts that
– owners of relatively abundant factors will gain from trade
(skilled labor in USA)
– owners of relatively scarce factors will lose from trade
(unskilled labor in USA
t or f
Unlike the Ricardian model, the Heckscher-Ohlin model
predicts that factor prices will be equalized among
countries that trade
t
