INTERNATIONAL ECONOMICS 03/01/20 COPY RIGHT Resources and Trade: The Heckscher-Ohlin Model 1.A Model of Two-Factor Economy 2.Effects of International Trade.

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（四） Resources and Trade: The Heckscher-Ohlin Model

• 1.A Model of Two-Factor Economy

• 2.Effects of International Trade Between Two-Factor Economies

• 3.Empirical Evidence on the Heckscher-Ohlin Model

• 4. Summary

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1.A Model of a Two-Factor Economy

• (1).Assumptions of the Model

• (2).Factor Prices and Goods Prices

• (3).Resources and Output

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(1).Assumptions of the Model

• The economy produce two goods: cloth and food two inputs: labor and land labor and land are in limited supply then, define: aTC, aLC, aTF, aLF, L, T

* Factor prices: w/r

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Figure 4-1 Input Possibilities in Food Production

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II

aTF

aLF

Input combinations that produce one calorie of food

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Figure 4-2 Factor Prices and Input Choices

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CC

FF

w/r

T/L

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(2).Factor Prices and Goods Prices

SS

PC/PF

w/r

Figure 4-3 Factor Prices and Goods Prices

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Figure 4-4 From Goods Prices to Input Choices

CC

FF

w/r

T/L

CC

FF

w/r

T/L

SS

PC/PF

w/r2

w/r1

PC/PF2 PC/PF

1 TC/LC1 TC/LC

2

TF/LF1

TF/LF2

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(3).Resources and Output

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1 C

FOC

OF

LC

LF

TC TF

Figure 4-5 The Allocation of Resources

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Figure 4-6 An Increase in the Supply of Land

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1 C

F1

OC

OF1

LC

LF1

TC 2

F2

LF2

TF2

TF1

OF2

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Figure 4-7 Resources and Production Possibilities

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QF2

QF1

QF

QC2 QC

1 QC

TT1 TT2

Slope=-PC/PF

Slope=-PC/PF

1

2 Generally, an economy will tend to be relatively effective at producing goods that are intensive in the factors with which the country is relatively well-endowed.

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2.Effects of International Trade Between Two-Factor Economies

(1).Relative Prices and the Pattern of Trade

(2).Trade and the Distribution of Income

(3).Factor Price Equalization

(4). Case Study: North-South Trade and Income

Inequality

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(1).Relative Prices and the Pattern of Trade

Assumption: Two countries

①have the same relative demands

②have the same technology level

③Home: labor-abundant (L/T > L*/ T*)

Foreign: land-abundant

④factor can not move between countries

⑤completely competition

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(1).Relative Prices and the Pattern of Trade

. . .

PC/PF

QC+QC*

QF+QF*

12

3

RS* RS

RD

Figure 4-8 Trade Leads to a Convergence of Relative Prices

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• Result:

Countries tend to export goods whose production is

intensive in factors with which they are abundantl

y endowed

• Heckscher-Ohlin Theorem:

A country will export that commodity which uses i

ntensively its abundant factor and import that co

mmodity which uses intensively its scarce factor.

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(2).Trade and the Distribution of Income

• In Home, where the relative price of cloth rises:

-----Laborers are made better off and landowners are

made worse off.

• In Foreign, where the relative price of cloth falls, the

opposite happens:

• Owners of a country’s abundant factors gain

from trade, but owners of a country’s scarce

factors lose.

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• Difference between the specific factors model

and the Heckscher-Ohlin model in terms of inc

ome distribution effects:

– The specificity of factors to particular industries is

often only a temporary problem.

– In contrast, effects of trade on the distribution of in

come among land, labor, and capital are more or le

ss permanent.

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(3).Factor Price Equalization

• Trade leads to equalization of factor prices.

• In reality, factor prices are not equalized

(Table 4-1).

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• Three assumptions are in reality untrue

①.both countries produce both goods

②.technologies are the same

③.trade actually equalize the prices of goods in

the two countries

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Table 4-1 Comparative International Wage Rates

United States

Germany

Japan

Spain

South Korea

Portugal

Mexico

Sri Lanka*

100

121

111

55

41

24

12

2

CountryHourly compensation of production workers,2000

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(4). Case Study: North-South Trade and Income

Inequality

North-South trade in manufactures fits to t

he factor proportions model much better.

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Table 4-2 Composition of Developing-Country Exports

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1973

1995

30

24

47.5

22.5

22

62.5

Agricultural Products

Mining Products

Manufactures Goods

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3.Empirical Evidence on the Heckscher-Ohlin Model

(1).Testing the Heckscher-Ohlin Model

(2).Implications of the Tests

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第 页03/01/20 绍兴文理学院经管学院 COPY RIGHT

(1).Testing the Heckscher-Ohlin Model

①.Tests on U.S. Data.

②.Tests on Global Data.

③.Tests on North-South Trade.

④.The Case of the Missing Trade.

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①.Tests on U.S. Data.

ⅰ.Leontief paradox

Wassily Leontief found that U.S. export w

ere less capital-intensive than U.S. imports.

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Year Factors Export Import Export/ Import

1947 Capital（＄） 2,550,789 3,091339

1.30

Labor（ hours）

182 170

K/L 14,100 18,180

1956 Capital（＄） 2256,800 2,303,400

1.06

Labor（ hours）

174 168

K/L 12,977 13,726

1971 (Baldwin)

Capital（＄） 1,876,000 2,132,000

1.27

Labor（ hours）

131 119

K/L 14,200 18,000

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ⅱ.the explanation of Leontief paradox

labor resources factor intensity reversal (figure 4-9) demand reversal (figure 4-10)

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Figure 4-9 Effects of factor intensity reversal

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K

Lw1

w2

KF′

KC′

kCkF

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Figure 4-10 Effects of Demand Reversal on International Trade

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QC, QC

′

QF

QF′

QF

QF′

QC

QC′

PC′/PF

′

PC/PF

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Table 4-4: Testing the Heckscher-Ohlin Model

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(2).Implications of the Tests

Empirical results concerning the Hec

kscher-Ohlin theory do not support its pre

dictions concerning resou-rce endowment

s explaining patter-ns of trade.

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4. Summary

• This chapter proceeds by first presentin

g a general equilibrium model of an econ

omy with two goods produced by two fac

tors under the assumption of fixed coeffi

ci-ent production functions.

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• Many of the important results of interna

tional trade theory are developed. These i

nclude: the Ry-bcznski Theorem, the Stol

per-Sam-uelson Theorem, and the Factor

Price Equalization Theorem.

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• Implications of the Heckscher-Ohlin m

odel for the pattern of trade among countr

ies are discussed, as are the failures of em

pirical evidence to confirm the predicti-o

ns of the theory.

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