This chapter surveys the development of the heckscher ohlin ho trade theory. The heckscher ohlin model model setup di erence to ricardo i in ricardo. Some trade is explained by the factor abundance and the rest by comparative advantages. Superiority of heckscher ohlin theory over the classical theory 3. This was developed by a swedish economist eli heckscher and his student bertil ohlin and hence the name. The heckscherohlin model and the network structure of. Ohlin, 1933 in its simplest version, that is a model in which there are two countries, two. The standard model of trade paul krugman maurice obsfeld model 4. Davis department of economics, harvard university, cambridge, ma 028, usa received february 1994, revised version received march 1995 abstract the large volume of intraindustry trade is often cited as a critical element favoring. It is also possible for one of the countries to be completely specialized. Given the assumptions of the model, a country will export the commodity that intensively uses its relatively abundant factor it is also referred to as the factorproportions theory. Production processes use factors of production with different relative intensity. If a country is specialized, it must specialize in the good in which it has.
I it is more complex than ricardo but gives far more subtle and nuanced predictions. A capitalabundant country will export the capitalintensive good, while the laborabundant country will export the laborintensive good. The heckscher ohlin ho model was developed by two swedish economists eli heckscher in a 1919 article and his student bertil ohlin developed heckscher s ideas further in his 1924 dissertation. The heckscherohlin theory of international trade chapter. The heckscher ohlin model is not limited to tradeable goods, but also focuses on abstract production factors like labour. Sebelum masuk ke dalam pembahasan teori ho, tulisan ini sedikit akan. The heckscher ohlin h o theorem explains the reasons, or cause for the differences in relative commodity prices and comparative advantage rather than assuming it. Solution to homework 2 heckscherohlin model and speci. Assumptions two goods, two sectors, two factor model in two countries, technologies are the same. The technologies used to produce the two goods are identical across the countries. A country exports those goods that use intensively the factors in which the country is abundantly supplied. It builds on david ricardos theory of comparative advantage by predicting patterns of commerce and production based on the factor endowments of a trading region.
Even today, the heckscher ohlin model still applies and it emphasises the advantage of international trade as well as worldwide advantages. Heckscher ohlin model explains such a trade pattern hisahiro naito institute heckscher ohlin model 2 46. The heckscherohlin factor proportions model overview. Sources of comparative advantage factorendowment heckscherohlin theory explains comparative advantage by differences in relative national supply conditions key. The heckscher ohlin theorem is one of the four critical theorems of the heckscher ohlin model, developed by swedish economist eli heckscher and bertil ohlin his student. The standard model of the theory of interindustry trade, named after its originators. This paper what we do 1 develop multisector model of. Using japanese regional data we are able to test the hov model by independently examining its.
The heckscher ohlin theory argues that trade occurs due to differences in labor, labor skills, physical capital, capital, or other factors of production across countries. A swedish economist who received the 1977 nobel memorial prize in economics, along with james meade, for his research on international trade and international capital movements. The stolpersamuelson theorem the stolpersamuelson theorem is one of the central results of heckscher ohlin theory q. Heckscher ohlin vanek theorem an excess supply approach1. Lecture 4 an introduction to the heckscher ohlin model. Global value chains and inequality with endogenous labor. In this model countries have the same constantreturnstoscale production functions for each good, but different amounts of capital relative to their labour supply. In order to understand the signicance of heckscher ohlin theory ho theory, it will be useful to look at the ricardian model of comparative advantage, which was a widely referred model among trade theorists before the introduction of ho model to the international trade literature. Model setup solution closed ecconomy integrated economy separation for free trade case factor price equalization stolpersamuelson theorem rybczynski theorem seyed ali madanizadeh sharif u. Heckscherohlin theory factor endowment theory factor price equalization. In this chapter, we outline the heckscherohlin model, a model that assumes that trade occurs because countries have different resources. Heckscher ohlin model of trade and resources toolshero.
The heckscherohlin ho hereafter model is a better description of the world economy after wwii. Extensions will be examined later on, in this chapter. The heckscherohlin samuelson h os model of international trade1. The specificfactors model that we studied in the previous chapter was a shortrun model because. A laborintensive country china exports laborintensive goods like apparel. Consumer tastes are the same across countries, and preferences for computers and shoes do not vary with a countrys level of income. Teori heckscer ohlin teori perdagangan internasional modern dimulai ketika ekonom swedia yaitu eli hecskher 1919 dan bertil ohlin 1933 mengemukakan penjelasan mengenai perdagangan internasional yang belum mampu dijelaskan dalam teori keunggulan komparatif. Heckscher ohlin ho l early part of the 20th century.
Development of heckscherohlin trade models mit press. The heckscher ohlin vanek model of factor service trade is a central construct in international economics, empirically, though, it is a flop. It provides a definite answer to a central question in applied economics. Hecksher ohlin model heckscher ohlin model exam with answer heckscher ohlin theory of international trade pdf model model pengajaran dan pembelajaran. The heckscherohlin h o model is a general equilibrium mathematical model of international trade, developed by ell heckscher and bertil ohlin at the stockholm school of economics. Specific factors and income distribution paul samuelson ronald jones model 3. We would expect wheat and software outputs to rise, shirts to fall. The heckscher ohlin theory culminates in what is now generally known as the heckscher ohlin theorem hot of the pattern of international trade.
The basic heckscher ohlin theorem says that a country will export the commodity which uses its abundant factor intensively and vice versa. Real incomes of land owners and skilled labor would rise, of unskilled labor would fall. A natural extension of trade models with one factor of production is to introduce more factors. This page provides an overview of the heckscher ohlin model assumptions and results. Introduction our first goal is to describe the heckscher ohlin ho model of trade. It generally states that nations exporting products use their cheap and abundant. Production and factor prices in equilibrium numerical example. Note that in both these constraint lines the inputoutput coefficients do not have asterisks. Graphs found on slides 8 and 18 are courtesy of marc melitz. Firstly, it adopts a more realistic framework as compared to ricardian. It is based on the assumption that trading countries adopt the same production technologies.
Other assumptions of the heckscher ohlin model assumption 5. The heckscher ohlin model also known as the ho model or 2x2x2 model is a theory in international trade that suggests that nations export those goods which are in abundance and which they can produce efficiently. I there is only one factor of production i outcome is complete specialization i this is very simplistic i the heckscher ohlin model aims to remedy some of these shortcomings. Heckscher ohlin model definition, assumptions overview. Resources and trade the eli heckscher and bertil ohlin model 2. The classical comparative costs theory developed by adam smith, ricardo and mill maintained that comparative cost advantage of the trading countries was based on the.
Eco364 international trade chapter 3 heckscher ohlin. The supply of labor and capital in each country is constant and varies across countries. The heckscher ohlin model is a mathematical model of international trade developed by bertil ohlin and eli heckscher. To understand the force of the ho model, one should recognize it in its time. In the 1930s world war i had decimated the major powers on a scale unimaginable to earlier generations, the world was in. To find out more details about each issue, click on the more info links scattered on the page. Technology is assumed to be the same abroad and at home. Lecture 4 an introduction to the heckscherohlin model. Heckscher ohlin model numerical example two goods, beer and cheese. Leontief 1953 was the first to confront the ho model with data and found that the capital. Those two countries have the same production functions. Its based on david ricardos theory of comparative advantage by forecasting patterns of production and commerce.
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