Heckscher-olin 4 Flashcards
what is hechscher-olin model?
trade occurs due to differences in factor endowments across countries, which determine differences in productivity
Countries export goods that use their abundant
factors intensively and import those goods that use
their scarce resources intensively
it explains the interplay of how factor endowments are complemented by each other in an economy
what are the assumptions of the h-o model
2x2x2 model countries factors and goods
technology and preferences identical
factors are mobile
0 transportation costs
who wins and who loses in trade o-h model
winners are those abundant in factors of production and losers are owners of scarce resources
stolper samuelson what he sayyyyyy
an in increase in the relative price of one good benefits that owner and hurts the other. how?
if capitalists earn more than workers and the US has a
comparative advantage in capital-intensive goods, globalisation/openness will further
increase the income gap. A more advanced answer could critically evaluate the
assumptions of the Heckscher-Ohlin model and Stolper-Samuelson theorem, and the
applicability of the SS theorem in practice
Rybczinski what he sayyyyyyy
At constant prices, as the amount of one factor increases, the supply of the good that uses this factor intensively increases, and the supply of the other good
decreases.
what does o-h model predict that is wrong?
The Heckscher-Ohlin model predicts that relative output prices and factor prices will equalize, neither of which occurs
in the real world.
empirical evidence for the model is weak unless trading with extremely low skilled countries or only highskilled
say we have a PPF between cloth and food with cloth being more labor intensive - what woukd happen with an increase in the workforce
with more labor we would shift to the labor-intensive good- in this case, cloth would see a big increase, and food production would decrease, shifting the ppf more in favour of cloth
we see biased expansion of production possibilities as our ppf shifts more in favour of cloth production ( the labor increase creates a new ppf
what happens to the prices of cloth as international trade starts? lec 4
prices will converge.
the labour intensive producer will see prices rise whereas the food producer will se cloth prices lower tis is because the greater production of cloth in the home economy drives up supply and lowers demand
what makes specific factors model and o.h. model different?
2 factors in o-h model such that there is no land. products use both labour and capital in production just that one will be labour intensive and the other capital intensive
across 2 countries that is
what is factor intensity?
factor intensity is the domination of capital/labour or vice versa between good 1 and good 2
what is factor abundance?
between countries
what is a real world example of labour intensive products and situatios
canada exporting wood to US nit because of more lumberjacks but due to greater forests
does capital intensive mean that they use only capital?
no! both are used one more than the other its just that that industry has a higher base level
why is the oppurtunity cost not constant in the o-h model?
as we produce more food, there will be greater labour excess or as we produce more cloth there will be greater machine hours unused
what is w/r2
this is the ratio of wages to rental rates
each industry can choose how much capital and how much labour is wanted in every good this is dependent on how much these 2 rates are
as wages get lower relative to rental rates more labour is used, differs between industries that need more of the other on a base level
