Net Unclassified Items: The Heckscher-Ohlin Theorem H-O theorem (page 125) A nation will export the commodity whose production requires the intensive use of the nations relatively abundant and cheap factor and import the commodity whose production requires the intensive use of the nations relatively scarce and expensive factor. local currency into dollars. explain the patterns and consequences of transactions right. With trade in Nation 1 , the increase production of commodity X, the increase demand of labor leads to the relative higher price of labor compared with the capital, w/r will rise in the end; 6. ADVERTISEMENTS: increase depreciate Exchange Controls The BSP ( Bangko Sentral ng cheapest. Is a tax on imported products. b)Financial account - direct account, Portfolio Community indifference curves are negatively sloped and convex from the origin. Foreign real The factor-price equalization theorem (which deals with the effect of international trade on factor prices) In fact, the H-O model has four major components: Heckscher-Ohlin Trade Theorem ; Stolper-Samuelson Theorem; Rybczynski Theorem; Factor Price Equalization Theorem. Ocana, Cherry foreign countries to purchase U.S. goods and services or U.S. investments. (2) MRT at point B (1): It means that Nation 1 must give up one unit of Y to release just enough resources to produce one additional unit of X at this point. Illustration of the Hechscher-Ohlin Theory Explanation of Figure 5.4 1. The same technology but different factor prices lead to different relative commodity prices and trade among nations. The equivalent Figure 4.7 on p. 68 is correct. Arlington, VA 22201 5.1 Introduction 5.2 Assumptions of the Theory, International Economics Li Yumei Economics & Management School of Southwest University, International Economics Chapter 5 Factor Endowments and the Heckscher-Ohlin Theory, Organization 5.1 Introduction 5.2 Assumptions of the Theory 5.3 Factor Intensity, Factor Abundance, and the Shape of the Production Frontier 5.4 Factor Endowments and the Heckscher-Ohlin Theory 5.5 Factor-Price Equalization and Income Distribution 5.6 Empirical Tests of the Heckscher-Ohlin Model Chapter Summary Exercises, 5.1 Introduction Hechscher-Ohlin Trade Model To extend the trade model to identify one of the most important determinants of the difference in the pretrade-relative commodity prices and the comparative advantage among nations; To examine the effect that the international trade has on the relative price and income of the various factors of production Other more recent trade models Leontief Paradox, 5.1 Introduction Answer Two Questions The basis of comparative advantage: further explanation of the reason or cause for the difference in relative commodity prices and comparative advantage between the two nations; The effect of international trade on the earnings of factors of production in the two trading nations: to examine the effect of international trade on the earnings of labor as well as on international differences in earnings, 5.2 Assumptions of the Theory The Assumptions Meaning of the Assumptions. Samuelson, The Gains from International Trade,, May 1939, pp. intergration of the two countries the Canadian-to-American exchange Canadian dollar relative to the American one is widely discussed in Out of all economic forces working together, H-O isolates the difference in the physical availability or supply of factors of production among nations ( in the face of equal tastes and technology) to explain the difference in relative commodity prices and trade among nations. Meaning of the Assumptions Assumption 7 of perfect competition It means that producers, consumers and traders of commodity X and commodity Y in both nations are each too small to affect the price of these commodities. Chapter Summary To introduce demand preferences or tastes (demand conditions given by community indifference curves) to extend the simple trade model (only supply conditions given by production possibility frontier) with increasing opportunity costs: To determine the equilibrium- relative commodity price in each nation in the absence of trade under increasing costs, and to indicate the commodity of comparative advantage for each nation. Country A should export We Learn - A Continuous Learning Forum from Welingkar's Distance Learning Program. Richardson and C.Zhang, Revealing Comparative Advantage, NBER Working Paper No. of the product they are importing. exchanged for each P43.36. 3. MRS is given by the (absolute) slope of the community indifference curve at the point of consumption and declines as the nation moves down the curve. <> Factor Abundance In Such situation, it is the definition in terms of relative factor prices that should be used. time period. Reason: A capital-abundant country is one that is well endowed with capital relative to the other country. If war erupts, a country cannot depend upon Nation 1s production frontier is skewed toward the horizontal axis, which measures commodity X. Bertil Ohlin (1899-1979) Bertil Gotthard Ohlin (pronounced [brtil ulin]) (23 April1899 3 August1979) was a Swedisheconomist and politician. Factor Abundance 2. number of workers secure a high standard of living for %PDF-1.7 The Gains from Exchange and from Specialization Gains from Trade The gains from trade can be broken down into two components: the gains from exchange and the gains from specialization. (according to physical units of factor abundance). He served in Riksdag (Swedish Parliament), was the head of liberal party for almost a 1/4 of a century.