Heckscher-Ohlin Model Flashcards
What is the main idea in this model?
Trade is based on differences in countries’ endowments of production factors (capital and labor)
What are the production factors in this model?
Labor and capital (or land)
How is the PPC in this model?
Bowed outwards (increasing opportunity cost)
What are the gains from trade in this model?
Specialization based on factor proportions (abundant factor is used more)
Are there some income distribution effects in this model?
Yes, some factors like labor or capital gain while others lose
How is the trade patterns explained in this model?
Trade between countries with different capital/labor endowments
When is this model used?
To analyze long-term trade patterns based on resource endowments (capital-abundant countries export capital-intensive goods)
Give an example of the model
Capital-rich countries (USA) export capital-intensive goods.
Labor-rich countries (Bangladesh) export labor-intensive goods
What key assumptions are there in this model?
Different factor endowments between countries
Constant technology
Why do countries trade according to this model?
Countries have different endowments of production factors such as capital and labor
What is the assumption of production factors in this model?
That each good uses production factors in different proportions
Some goods are labor intensive and some capital intensive
Does the stolper-samuelson theorem apply in this model? How?
Trade favors the abundant factor (higher incomes) and disadvantages of the scarce factor
When does the factor price equalization even out the production factor prices? What terms?
Same technology
Free trade without transport costs or trade barriers
Full competition in the markets
