PSCI 3328 Lecture Notes - Lecture 21: Factor Endowment, Human Capital, Free Trade
Document Summary
Economy is viewed in terms of factor endowment: land. Us has a lot of land, japan does not. States will export goods that make intensive use of their abundant factors: based on this model, us is expected to export agriculture products since this is what they have abundant numbers of. States will import goods that make intensive use of their scarce factors. State will use trade protection to benefit the scarce factor of production. Main purpose is to predict support/opposition of trade barriers: owners of scarce factor support protectionism. Japanese farmers, due to scarce land, will support protectionism: owners of abundant factor support free trade. Those with abundant sources will want free trade and not be cut off or limited by the protection for the ones with scarce sources. Trade is broken into sections which use the various factors of production. Land, labor, and capital are all still important, but sector is more important: also called specific-factors model.