🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
HomeClass Notes1,200,000US530,000

EC 340 Lecture 4: Chapter 4 Heckscher-Ohlin Model

112 views10 pages
salmoneel391
15 Feb 2017
School
MSU
Department
Economics
Course
EC 340
Professor
Orin Ziv

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Chapter 4 heckscher-ohlin model the role of factor endowment. -intuition: countries differ in their endowment of different types (skills) of labor, physical capital, land and other factors of production. -trade happens to take advantage of differences in prices of these factors. -model deliver sharp predictions for trade patterns, as in the ricardian model. -also sharp predictions for distributional effects from trade, as in endowment model. assumptions of the h-o model. -two-country model with home and foreign: same technology and same preferences across countries. -two factors of production: labor l and capital k. -in each country, the amount of l and k is fixed but varies across countries. -both goods produced by combining l and k according to a production function. -l and k can be freely reallocated across sectors. -the technology for producing cloth is more capital intensive than the technology for producing food.

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers

Related Documents

EC 340 Lecture 5: Chapter 5 increasing return model
salmoneel391
EC 340 Lecture 3: Chapter 3 Ricardian Model
salmoneel391
EC 340
Final Exam
Study Guide
EC 340 Study Guide - Midterm Guide: Gross Domestic Product, Absolute Advantage, Comparative Advantage
copperbat150

Related Questions

1. When Home has a comparative advantage over Foreign in cloth,

A. The Autarky relative price of cloth in terms of wine is lower at Home than in Foreign:

B. Foreign must have a comparative advantage over Home in wine

C.Home will specialize in producing cloth when there is free trade

D. Both (A) and (B) are correct

E. (A), (B), and (C) are correct.

2. In the Ricardian Model, with countries Home and Foreign and with two goods under trade, assume aLC/ aLW <aLC/ aLW where aLC and aLW are unit labor requirements for cloth and wine in Home and aLC and aLW in Foreign. Suppose a Home-export biased catch-up occurs in Foreign, i.e. aLC decreases. Then it is the case that:

A. The relative price of cloth (vs. food) may go down.

B. The terms of trade of Foreign must improve

C. The terms of trade of Home may remain unchanged.

D. (A) and (C)

E None of the above

4. Imagine a world with two goods, food (F) and shelter (S), and two factors of production, labor (L) and capital (K). Assume that labor and capital can be employed in either sector of the econ omy (the food sector or the shelter sector) and that these factors are completely mobile across the two sectors. Assume that the total supply of labor and capital in this world is fixed. Finally, suppose that before any taxes are imposed, the food indust ry is labor intensive . a. Consider a partial factor tax on capital used in the food industry (t KF ). Which factor will bear more of the economic incidence of the tax? Explain your answer. b. How would your answer to (a) change if the food industry and the shelter industry had the same factor intensity (K F /L F =K S /L S )? c. How would you answer to (a) change if capital was immobile (in other words, if labor could not move across the sectors)?

1. The Heckscher Ohlin model Home and Foreign have twoproduction factors, skilled and unskilled labor and produce twogoods, textiles and computers. Home is skilled labor abundant,and computers are skilled labor intensive. Starting from asituation of autarky, the two countries liberalize trade. Assumingthat the two countries produce both goods before and after tradeliberalization, answer the following questions:

  1. (a) What is the effect of trade liberalization on the relativeprice of com- puters at Home and in Foreign?

  2. (b) What is the effect of trade liberalization on the output ofcomputers and textiles at Home and in Foreign?

  3. (c) What is the effect of trade liberalization on aggregatewelfare in the two countries?

  4. (d) What is the effect of trade liberalization on the realfactor returns in Home and Foreign? Please provide a graphicalexplanation for your argument. What is the name of this famousresult?

2. The Heckscher-Ohlin model Recently, computer programmers indevel- oping countries like India have begun doing some workformerly done in the United States. This shift has undoubtedly ledto substantial pay cuts for some programmers in the United States.Answer the following two questions:

  1. (a) How is it possible, when the wages of skilled labor arerising in the United States as a whole?

  2. (b) What argument would trade economists make against seeingthese wage cuts as a reason to block outsourcing of computerprogramming?

3. The Heckscher-Ohlin model This question asks you to reviewsome of the empirical tests of the Heckscher-Ohlin model.

(a) Explain how the Leontief Paradox and the more recent resultsby Bowen, Leamer and Sweikauskas discussed in class and in thetextbook contradict the predictions of the Heckscher Ohlinmodel.

(b) In the discussion of empirical results on the HeckscherOhlin model, we noted that recent work suggests that the efficiencyof production factors differ across countries. Explain how thiswould affect the concept of factor price equalization.