Question

Hi. please make it short answer.

1-What are some shortcomings ( failures ) of the Heckscher- Ohlin model's ability to accurately predict trade and how can those assumptions be modified to better predict patterns of trade?

Answer 1

The model fails to develop a general equilibrium concept and remains to be an analysis of partial equilibrium . It predicts trade based on factor proportions and intensities but ignores transport costs, economies of scale etc . So in order to make it a sound model one needs to incorporate such factors also when determining pattern of trade .

Secondly , the assumptions made while building the model are way too unrealistic . Like perfect competition, full employment of resources, identical production function, constant returns to scale, absence of transport costs and absence of product differentiation are some highly simplifies assumptions which do not match real world situations . To make the model more realistic such assumptions such be altered to suite the real world situation . The dynamic element is missing from the model .

The model tells us that trade is unlikely to occur between countries with similar relative factor proportions but it is not true all the time . The model ignores technological progress as a factor that has highly influenced trade . Such technological changes must be incorporated in the model .