International Economics Chapter 5 Factor Endowments and the Heckscher-Ohlin Theory.doc

International Economics Chapter 5 Factor Endowments and the Heckscher-Ohlin Theory
International Economics
Li Yumei
Economics & Management School
of Southwest University
International Economics
Chapter 5
Factor Endowments and the Heckscher-Ohlin Theory
Organization
Introduction
Assumptions of the Theory
Factor Intensity, Factor Abundance, and the Shape of the Production Frontier
Factor Endowments and the Heckscher-Ohlin Theory
Factor-Price Equalization and e Distribution
Empirical Tests of the Heckscher-Ohlin Model
Chapter Summary
Exercises
Introduction
Hechscher-Ohlin Trade Model
To extend the trade model to identify one of the most important determinants of the difference in the pretrade-modity prices and parative advantage among nations;
To examine the effect that the international trade has on the relative price and e of the various factors of production
Other more recent trade models
Leontief Paradox
Introduction
Answer Two Questions
The basis parative advantage: further explanation of the reason or cause for the difference in modity prices parative 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
Assumptions of the Theory
The Assumptions
Meaning of the Assumptions
The Assumptions
1. Two nations, modities (X and Y) and two factors (labor and capital);
2. Both nations use the same technology in production;
3. Commodity X is labor intensive, modity Y is capital intensive in both nations;
4. modities are produced under constant returns to scale in both nations;
5. There is plete specialization in production in both nations;
6. Tastes are equal in both nations;
The Assumptions
7. There is petition in modities and factor markets in both nations;
8. There is perfect factor