Which countries would benefit most from Heckscher-Ohlin's theory? & Why is Heckscher-Ohlin theory still effective?

Solutions

Expert Solution

Hecksher - Ohlin Theory developed Factor Endowment Theory

Assumptions

two country ,two commodity ,two factors of production

2*2*2 model

for example two countries A and B Two commodities X and Y two factors labour and capital

Commodity	Capital	Labour	Countries
X	2	2	A
Y	1	4	B

In the above table there are two countries producing two different commodities Xand Y with two factors of production Labour and Country

So the country A got 2 unit of both labour and capital producing Xcommodity while on the other Hand Country B produces Y commodity with 1 unit of capital and 4 unit of labour so itwillbe beneficial for country B to produce more of labour intensive goods rather than capital intensive goods.While in case of country A should produce more of capital intensive goods because they can export those goods to countryB which is more of labour intensive rather than capital intensive goods.

basically the if the country will produce that commodity that require large prportion of factor which is relatively abundant.Conversely each nation is least suitable to produce the commodity which requires greater proportion of factor which is sacrce or available in small quantity.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Heckscher-Ohlin Model Theory of International Trade

“New trade theory is at variance with the Heckscher-Ohlin theory, which suggests a country will predominate...

“New trade theory is at variance with the Heckscher-Ohlin theory, which suggests a country will predominate in the export of a product when it is particularly well endowed with those factors used intensively in its manufacture.” (Hill & Hult, 2019) Explain New Trade Theory. What is it? What does it depend on?

How is Stolper-Samuelson Theorem different from Heckscher–Ohlin (H–O) theory and Comparative advantage theory?

Which of the following best explains why opportunity costs are rising in the Heckscher-Ohlin model? The...

Which of the following best explains why opportunity costs are rising in the Heckscher-Ohlin model? The factor endowments vary across countries. All the factor inputs are not fully utilized in the production of different commodities. Different consumers have different tastes and preference sets. Different commodities use inputs in different proportions.

In a Heckscher-Ohlin model, suppose there are two countries: Scotland and Portugal. Two goods are produced...

In a Heckscher-Ohlin model, suppose there are two countries: Scotland and Portugal. Two goods are produced in this world: cheese ( C) and wine (W). Cheese and wine are both produced using two factors of production: labour (L) and land (T). Wine is land-intensive while cheese is labour-intensive. Suppose that Scotland and Portugal have the exact same quantity of labour, but Scotland has more land than Portugal. Assume that the post-trade world relative price of cheese is the mean (average)...

We saw that the Heckscher-Ohlin-Vanek prediction does not find support in data. Which of the following assumptions of the Heckscher-Ohlin model is likely to be the culprit

Part A) We saw that the Heckscher-Ohlin-Vanek prediction does not find support in data. Which of the following assumptions of the Heckscher-Ohlin model is likely to be the culprit Different goods have different factor intensities Different countries have different endowments Factors of production are mobile within a country Countries have identical technologies Part B) Which of the following statements describes offshoring? a)It refers to the export of capital services by a country. b)It refers to the export of labor services...

Indicate whether the following statement is true/false/uncertain and explain why: 1. The Heckscher-Ohlin-Samuelson theory is likely...

Indicate whether the following statement is true/false/uncertain and explain why: 1. The Heckscher-Ohlin-Samuelson theory is likely to explain the rise of the skill premium in the US and other industrialized countries in recent decades, because in the data we have observed a rise in the price of skill-intensive goods relative to unskilled labor-intensive goods over the same period. 2. In the Melitz model if the transport cost t is zero then opening up to trade does not force the least...

(A). In what way, if any, does the Heckscher-Ohlin theory lead one to conclude that trade...

(A). In what way, if any, does the Heckscher-Ohlin theory lead one to conclude that trade in goods is a substitute for international movements in the factors of production? (B). Two of the strong assumptions underlying the Heckscher-Ohlin theory are zero transportation costs and perfect competition. Explain how the absence of each might alter the conclusions reached in the Heckscher-Ohlin theory.

Please compare and contrast the Ricardian Law of Comparative Advantage with the modern theory (Heckscher-Ohlin) of...

Please compare and contrast the Ricardian Law of Comparative Advantage with the modern theory (Heckscher-Ohlin) of international trade.

Consider a Heckscher-Ohlin world with two countries (Japan and Ireland), two goods (Cameras and Linen), and...

Consider a Heckscher-Ohlin world with two countries (Japan and Ireland), two goods (Cameras and Linen), and two factors of production (labor(L) and capital(K)). Both factors of production are used in the production of each of these goods. Suppose the K/L ratio used to make linen is less than the K/L ratio used to make cameras. Also, the ratio of total capital to labor in the economy is higher in Japan than Ireland. Assume that Japan and Ireland have the same...

Subjects