Once trade opens up in a two country two commodity model of the Heckscher-Ohlin theorem, what...

Once trade opens up in a two country two commodity model of the Heckscher-Ohlin theorem, what happens to the prices of the two commodities in each country? What happens to the returns to the factors of production in each country?

Expert Solution

As per the Heckscher Ohlin theorem the nation having a an abundance of the production variable will be exporting the good which use that variable of production more, for example US having more capital than labor will be exporting capital intensive goods and China having more labor will be exporting more labor intensive goods.

When two nations trade, the price of the commodity of those two nation increase, and the return for the factor of production for the abundant factor increase and the return for the scarce factor will decrease even further.

Rahul Sunny answered 2 years ago

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