Question

Explain in your own words (50 words maximum) each concept below:

a) The Ricardian Model vs. the Heckscher-Ohlin Trade Model.

b) Shallow vs. Deep Integration

c) The OLI Theory

Answer 1

1. The Ricardian model vs. Heckscher-Ohlin.
Ricardian model focus on only one factor of production which is labor. It only uses workforce productivity to explain differences in international trade. whereas Heckscher-Ohlin assumes that there are two factors of production named labor & capital. One country is more or less developed then other because of the difference in these two factors.

2. Shallow vs. deep integration

shallow integration means reduction or elimination of tariffs,quotas and other barriers to trade in goods at the border.

whereas deep integration refers to trade agreement which not only contains rules on tariffs and restriction,but which also regulate the business environment in a moral general sense.

3. The OLI theory

It is published by John Dunning in 1979.The OLI stands for(Ownership,location,intenalization).This theory states that transactions are made within an istitution if the transaction costs on the free market are higher than the internal costs.It mainly focus how a firm maximize its investment in a foriegn market.

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