BUS5 187 Lecture Notes - Lecture 11: Leontief Paradox, Wassily Leontief, Bertil Ohlin
pterIs Unrestricted Free Trade
Always Beneficial?
•Unrestricted free trade is beneficial, but the gains may not be as great as the
simple model of comparative advantage would suggest
1. immobile resources
2. diminishing returns
3. dynamic effects and economic growth
4. the Samuelson critique
•But, opening a country to trade could increase
–a country's stock of resources as increased supplies become available
from abroad
–the efficiency of resource utilization and so free up resources for other
uses
–economic growth
Could A Rich Country Be
Worse Off With Free Trade?
•Paul Samuelson - the dynamic gains from trade may not always be beneficial
–Free trade may ultimately result in lower wages in the rich country
•The ability to offshore services jobs that were traditionally not internationally
mobile may have the effect of a mass inward migration into the United States,
where wages would then fall
–But, protectionist measures could create a more harmful situation than
free trade
What Is The Heckscher-Ohlin Theory?
4. Eli Heckscher (1919) and Bertil Ohlin (1933) - comparative
advantage arises from differences in national factor endowments
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