international trade
Subject #2: Does the Leontief paradox invalidate the Heckscher-Ohlin model of trade?Why and how countries trade has always been a difficult and capital question for economists. The Ricardian model explained trade patterns through differences in labour productivity, however international trade can only partially be explained this way. It has also been wildly believed that resource allocation also plays a vital role in how nations trade, Heckscher-Ohlin (H-O), two Swedish economists, were the first to integrate resource allocation in an economic model of trade now referred to as the Heckscher-Ohlin model of trade. This theory was generally accepted when it was published. However Leontief published empirical data about USAtrading (1953) that was largely inconsistent with the H-O theory of trade. Since then data about what countries trade has been so inconsistent and confusing that there is no real empirical data supporting the H-O model of trade. Thus there are flaws in the original H-O theory; the questions now are : why isn't there any empirical data, and under what conditions is it possible to make the model consistent with reality?
Another assumption that greatly hinders the H-O model of trade is the fact that it assumes that technology is the same everywhere and even though machines can be bought it can be argued that technology is relatively immobile, thus creating greater differences in the needs of firms to operate with skill or unskilled labour. However this can be generally omitted because interest rates do not change much from a country to another. Thus we have a nation who produces two goods i. Wood, "Give Hecksher and Ohlin a Chance", SLC. But capital nowadays is something that can travel more freely than ever. land and labour, of course this is set under the conditions of pure and perfect competition thus both factors are mobile. However it is important to point out that the evidence that arises from the Leontief report against the H-O model must be taken into it's context, the US has a unique status, in the fact that it is the technologically most advanced country in the world which maybe implies that it specialises in exports of relatively new sophisticated products, which are maybe to sophisticated to be produced by capital instead of skill. The simplest way to explain this model is by explaining how it works in a two-factor economy (two kind of industries with two kinds of inputs), and what happens when this economy opens to trade with a twin nation. However it is far from giving us a complete general theory on how countries trade. First of all it is necessary to chose factors that are immobile the best examples of this is of course is the level of skill amongst labour relative to their wages, and the natural resources of a country. For example if the quantity of land suddenly varies this will have little effect upon cloth who is more labour intensive, on the other hand food who is more land intensive will probably have an important price and wage variation ; therefor it is possible to assume that there is an important correlation between the rent of land and the wages of labour, and there is also correlation between the price of food and the price cloth (as illustrated beneath). The H-O model is not the truth but simply an instrument that can give us an idea what the big picture is.
Common topics in this essay:
H-O Swedish,
EU NAFTA,
World War2,
North South,
HOUADRIA ESSAY,
Applying H-O,
h-o model,
Chance SLC,
Finally H-O,
h-o theory,
model trade,
resource allocation,
capital intensive,
countries trade,
comparative advantage,
Bibliography Bibliography,
natural resources,
empirical data,
International Edition,
comparative advantage capital,
trade patterns,
h-o model trade,
heckscher-ohlin model trade,
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Acceptance Essays
