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  • Factor Proportions Theory Heckscher-Ohlin (H-O) : - Assumptions

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    Prachi Kaushik
    42 Ansichten9 Seiten
    The Heckscher-Ohlin (H-O) model assumes that countries have access to the same technologies but differ in their relative abundance of factors of production like capital and labor. It predicts that a country will export goods that intensively use its relatively abundant factor and import goods that intensively use its scarce factors. Specifically, a country will produce and export more of the good that uses the factor it has in relative abundance compared to its trading partner.

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    H-O Theory

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    The Heckscher-Ohlin (H-O) model assumes that countries have access to the same technologies but differ in their relative abundance of factors of production like capital and labor. It predicts that a country will export goods that intensively use its relatively abundant factor and import goods that intensively use its scarce factors. Specifically, a country will produce and export more of the good that uses the factor it has in relative abundance compared to its trading partner.

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    Attribution Non-Commercial (BY-NC)
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    42 Ansichten9 Seiten

    Factor Proportions Theory Heckscher-Ohlin (H-O) : - Assumptions

    Hochgeladen von

    Prachi Kaushik
    The Heckscher-Ohlin (H-O) model assumes that countries have access to the same technologies but differ in their relative abundance of factors of production like capital and labor. It predicts that a country will export goods that intensively use its relatively abundant factor and import goods that intensively use its scarce factors. Specifically, a country will produce and export more of the good that uses the factor it has in relative abundance compared to its trading partner.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Als PPT, PDF, TXT herunterladen oder online auf Scribd lesen
    Markieren Sie unangemessene Inhalte
    von 9

    Factor Proportions Theory

    Heckscher-Ohlin (H-O)
    • Assumptions
    – Both countries have “access” to same technologies
    • Two production sectors
    – One is more labor intensive than the other sector
    – The other sector is more capital (or land) intensive
    • Two or more production factors
    • Similar production functions
    • Decreasing marginal productivities for each factor (others fixed)
    • Decreasing returns to scale for all factors (all variable)
    – Both countries have the same preferences
    Factor Proportions Theory
    Heckscher-Ohlin (H-O)
    • Assumptions (cont)
    – But each country has different factor
    proportions:
    • Example: One country is more labor abundant than
    the other
    Factor Proportions Theory
    Heckscher-Ohlin (H-O)
    • Propositions
    – A country will choose to produce more in the
    sector which is more intensive in the factor that
    is more abundant.

    – Abundance is a relative concept: relatively


    abundant
    Factor Proportions Theory
    Heckscher-Ohlin (H-O)
    • Countries export the products that use their abundant
    factors intensively (and import the products that use
    their scarce factors intensively).

    • With no trade the relatively abundant production


    factors will be relatively cheap, so that the product
    that uses these factors relatively intensively will have
    a low no-trade price. As trade is opened, this product
    is exported.
    Resource Endowment and Domestic
    Production Pattern: Equal Case
    US
    Rest of the World
    Capital

    Capital
    Labor Labor
    Wheat,

    Wheat,
    Cloth, yards Cloth, yards
    Production and Consumption
    Supply and Demand: Equal Case
    US Rest of the World
    Wheat, bushels

    Wheat, bushels
    Cloth, yards Cloth, yards

    Sus Srw
    Bushels/yard

    Bushels/yard
    Dus Drw
    Cloth, yards Cloth, yards Cloth, yards
    Resource Endowment and Domestic Production
    Pattern : Different Factor Proportions
    US
    Rest of the World
    Capital

    Capital
    Labor Labor
    Wheat, bushels

    Wheat, bushels
    Cloth, yards Cloth, yards
    Supply and Demand under Different Factor
    Proportions: International Trade
    US Rest of the World
    Wheat, bushels

    Wheat, bushels
    Cloth, yards Cloth, yards
    Sus
    Srw
    Bushels/yard

    Bushels/yard
    X

    M
    Cloth, yards Cloth, yards Cloth, yards
    This is the Heckscher-Ohlin
    theorem:

    Each country exports the good intensive


    in the country's abundant factor.

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