1、Chapter 4Resources and Trade:The Heckscher-Ohlin Model1Chapter 4Resources and Trade:TIntroductionA Model of a Two-Factor EconomyEffects of International Trade Between Two-Factor EconomiesEmpirical Evidence on the Heckscher-Ohlin ModelSummaryAppendix: Factor Prices, Goods Prices, and Input ChoicesCha

2、pter Organization2IntroductionChapter OrganizatiIntroductionIn the real world, while trade is partly explained by differences in labor productivity, it also reflects differences in countries resources.The Heckscher-Ohlin theory:Emphasizes resource differences as the only source of tradeShows that co

3、mparative advantage is influenced by:Relative factor abundance (refers to countries)Relative factor intensity (refers to goods)Is also referred to as the factor-proportions theory3IntroductionIn the real world,Assumptions of the ModelAn economy can produce two goods, cloth and food.The production of

4、 these goods requires two inputs that are in limited supply; labor (L) and land (T).Production of food is land-intensive and production of cloth is labor-intensive in both countries.Perfect competition prevails in all markets.A Model of a Two-Factor Economy4Assumptions of the ModelA Mode/Input combi

5、nations that produce one calorie of foodUnit land input aTF ,in acres per calorieUnit land input aLF ,in hours per calorieA Model of a Two-Factor EconomyFigure 4-1: Input Possibilities in Food Production5/Input combinations Unit landFactor IntensityIn a world of two goods (cloth and food) and two fa

6、ctors (labor and land), food production is land-intensive, if at any given wage-rental ratio the land-labor ratio used in the production of food is greater than that used in the production of cloth: TF/LF TC/ LCExample: If food production uses 80 workers and 200 acres, while cloth production uses 20

7、 workers and 20 acres, then food production is land-intensive and cloth production is labor-intensive.A Model of a Two-Factor Economy6Factor IntensityA Model of a TCCFFWage-rental ratio, w/rLand-laborratio, T/LA Model of a Two-Factor EconomyFigure 4-2: Factor Prices and Input Choices7CCFFWage-rental

8、 Land-laborA MoFactor Prices and Goods PricesStolper-Samuelson Theorem (effect):If the relative price of a good increases, holding factor supplies constant, then the nominal and real return (in terms of both goods) to the factor used intensively in the production of that good increases, while the no

9、minal and real return (in terms of both goods) to the other factor decreases.The reverse is also true.A Model of a Two-Factor Economy8Factor Prices and Goods PricesSSRelative price ofcloth, PC/PFWage-rentalratio, w/rA Model of a Two-Factor EconomyFigure 4-3: Factor Prices and Goods Prices9SSRelative

10、 price ofWage-rentalFFCCSSLand-labor Ratio, T/LRelativeprice ofcloth, PC/PFWage-rentalratio, w/r(PC/PF)1(TC/LC)2(TC/LC)1(TF/LF)2(TF/LF)1(w/r)2(w/r)1IncreasingIncreasingA Model of a Two-Factor EconomyFigure 4-4: From Goods Prices to Input Choices(PC/PF)210FFCCSSLand-RelativeWage-rentalAn increase in

11、the price of cloth relative to that of food, PC/PF ,will:Raise the income of workers relative to that of landowners, w/r. Raise the ratio of land to labor, T/L, in both cloth and food production and thus raise the marginal product of labor in terms of both goods. Raise the purchasing power of worker

12、s and lower the purchasing power of landowners, by raising real wages and lowering real rents in terms of both goods.A Model of a Two-Factor Economy11An increase in the price of clResources and OutputHow is the allocation of resources determined?Given the relative price of cloth and the supplies of

13、land and labor, it is possible to determine how much of each resource the economy devotes to the production of each good.A Model of a Two-Factor Economy12Resources and OutputA Model ofLFTFLCTCLabor used in food productionLabor used in cloth productionOFIncreasingIncreasingIncreasingIncreasingLand us

14、ed in cloth productionLand used in food production1FCOCA Model of a Two-Factor EconomyFigure 4-5: The Allocation of Resources13LFTFLCTCLabor used in food proHow do the outputs of the two goods change when the economys resources change?Rybczynski Theorem (effect):If a factor of production (T or L) in

15、creases, then the supply of the good that uses this factor intensively increases and the supply of the other good decreases for any given commodity prices.The reverse is also true.A Model of a Two-Factor Economy14How do the outputs of the two CL2FL2CT1FT1CF1L1FL1CT2FT2C1A Model of a Two-Factor Econo

16、myFigure 4-6: An Increase in the Supply of LandLabor used in food productionLabor used in cloth productionIncreasingIncreasingIncreasingIncreasingLand used in cloth productionLand used in food productionF2O1FO2F2OC15CL2FL2CT1FT1CF1L1FL1CT2FT2C1A TT1TT2Output offood, QFOutput ofcloth, QCSlope = -PC/P

17、FSlope = -PC/PF2Q2FQ2C1Q1FQ1CA Model of a Two-Factor EconomyFigure 4-7: Resources and Production Possibilities16TT1TT2Output ofOutput ofSlope An increase in the supply of land (labor) leads to a biased expansion of production possibilities toward food (cloth) production.The biased effect of increase

18、s (decreases) in resources on production possibilities is the key to understanding how differences in resources give rise to international trade. An economy will tend to be relatively effective at producing goods that are intensive in the factors with which the country is relatively well-endowed.A M

19、odel of a Two-Factor Economy17An increase in the supply of lAssumptions of the Heckscher-Ohlin model:There are two countries (Home and Foreign) that have:Same tastesSame technologyDifferent resourcesHome has a higher ratio of labor to land than Foreign doesEach country has the same production struct

20、ure of a two-factor economy.Effects of International Trade Between Two-Factor Economies18Assumptions of the Heckscher-ORelative Prices and the Pattern of TradeFactor AbundanceHome country is labor-abundant compared to Foreign country (and Foreign is land-abundant compared to Home) if and only if the

21、 ratio of the total amount of labor to the total amount of land available in Home is greater than that in Foreign:L/T L*/ T*Example: if America has 80 million workers and 200 million acres, while Britain has 20 million workers and 20 million acres, then Britain is labor-abundant and America is land-

22、abundant.In this case, the scarce factor in Home is land and in Foreign is labor.Effects of International Trade Between Two-Factor Economies19Relative Prices and the PatterWhen Home and Foreign trade with each other, their relative prices converge. The relative price of cloth rises in Home and decli

23、nes in Foreign. In Home, the rise in the relative price of cloth leads to a rise in the production of cloth and a decline in relative consumption, so Home becomes an exporter of cloth and an importer of food. Conversely, the decline in the relative price of cloth in Foreign leads it to become an imp

24、orter of cloth and an exporter of food.Effects of International Trade Between Two-Factor Economies20When Home and Foreign trade wiRDRSRS*123Effects of International Trade Between Two-Factor EconomiesFigure 4-8: Trade Leads to a Convergence of Relative PricesRelative price of cloth, PC/PFRelative qua

25、lityof cloth, QC + Q*C QF + Q*F21RDRSRS*123Effects of InternatiHeckscher-Ohlin Theorem:A country will export that commodity which uses intensively its abundant factor and import that commodity which uses intensively its scarce factor.Effects of International Trade Between Two-Factor Economies22Hecks

26、cher-Ohlin Theorem:EffectTrade and the Distribution of IncomeTrade produces a convergence of relative prices.Changes in relative prices have strong effects on the relative earnings of labor and land in both countries:In Home, where the relative price of cloth rises:Laborers are made better off and l

27、andowners are made worse off.In Foreign, where the relative price of cloth falls, the opposite happens: Laborers are made worse off and landowners are made better off.Owners of a countrys abundant factors gain from trade, but owners of a countrys scarce factors lose.Effects of International Trade Be

28、tween Two-Factor Economies23Trade and the Distribution of Difference between the specific factors model and the Heckscher-Ohlin model in terms of income distribution effects:The specificity of factors to particular industries is often only a temporary problem. Example: Garment makers cannot become c

29、omputer manufactures overnight, but given time the U.S. economy can shift its manufacturing employment from declining sectors to expanding ones. In contrast, effects of trade on the distribution of income among land, labor, and capital are more or less permanent.Effects of International Trade Betwee

30、n Two-Factor Economies24Difference between the specifiFactor Price EqualizationIn the absence of trade: labor would earn less in Home than in Foreign, and land would earn more.Factor-Price Equalization Theorem:International trade leads to complete equalization in the relative and absolute returns to

31、 homogeneous factors across countries.It implies that international trade is a substitute for the international mobility of factors.Effects of International Trade Between Two-Factor Economies25Factor Price EqualizationEffecHas international trade equalized the returns to homogeneous factors in diffe

32、rent countries in the real world?Even casual observation clearly indicates that it has not. Example: Wages are much higher for doctors, engineers, technicians, mechanics and laborers in the United States and Germany than in Korea and Mexico.Under these circumstances, it is more realistic to say that

33、 international trade has reduced, rather than completely eliminated, the international difference in the returns to homogeneous factors.Effects of International Trade Between Two-Factor Economies26Has international trade equaliEffects of International Trade Between Two-Factor EconomiesTable 4-1: Com

34、parative International Wage Rates (United States = 100)27Effects of International TradeThree assumptions crucial to the prediction of factor price equalization are in reality untrue:Both countries produce both goodsBoth countries have the same technologies in productionBoth countries have the same p

35、rices of goods due to tradeOne thing the factor-price equalization theorem does not say is that international trade will eliminate or reduce international differences in per capita incomes.Effects of International Trade Between Two-Factor Economies28Three assumptions crucial to tEffects of Internati

36、onal Trade Between Two-Factor EconomiesTable 4-2: Composition of Developing-Country Exports (Percent of Total)29Effects of International TradeTesting the Heckscher-Ohlin ModelTests on U.S. DataLeontief paradoxLeontief found that U.S. exports were less capital-intensive than U.S. imports, even though

37、 the U.S. is the most capital-abundant country in the world.Tests on Global DataA study by Bowen, Leamer, and Sveikauskas tested the Heckscher-Ohlin model using data for a large number of countries.This study confirms the Leontief paradox on a broader level.Empirical Evidence on the Heckscher-Ohlin

38、Model30Testing the Heckscher-Ohlin MoTable 4-3: Factor Content of U.S. Exports and Imports for 1962Empirical Evidence on the Heckscher-Ohlin Model31Table 4-3: Factor Content of UEmpirical Evidence on the Heckscher-Ohlin ModelTable 4-4: Testing the Heckscher-Ohlin Model32Empirical Evidence on the Hec

39、kTests on North-South TradeNorth-South trade in manufactures seems to fit the Heckscher-Ohlin theory much better than the overall pattern of international trade.The Case of the Missing TradeA study by Trefler in 1995 showed that technological differences across a sample of countries are very large.E

40、mpirical Evidence on the Heckscher-Ohlin Model33Tests on North-South TradeEmpiEmpirical Evidence on the Heckscher-Ohlin ModelTable 4-5: Trade Between the United States and South Korea, 1992 (million dollars)34Empirical Evidence on the HeckEmpirical Evidence on the Heckscher-Ohlin ModelTable 4-6: Est

41、imated Technological Efficiency, 1983 (United States = 1)35Empirical Evidence on the HeckImplications of the TestsEmpirical evidence on the Heckscher-Ohlin model has led to the following conclusions:It has been less successful at explaining the actual pattern of international trade.It has been usefu

42、l as a way to analyze the effects of trade on income distribution.Empirical Evidence on the Heckscher-Ohlin Model36Implications of the TestsEmpirThe Heckscher-Ohlin model, in which two goods are produced using two factors of production, emphasizes the role of resources in trade.A rise in the relativ

43、e price of the labor-intensive good will shift the distribution of income in favor of labor:The real wage of labor will rise in terms of both goods, while the real income of landowners will fall in terms of both goods.Summary37The Heckscher-Ohlin model, in For any given commodity prices, an increase

44、 in a factor of production increases the supply of the good that uses this factor intensively and reduces the supply of the other good.The Heckscher-Ohlin theorem predicts the following pattern of trade:A country will export that commodity which uses intensively its abundant factor and import that c

45、ommodity which uses intensively its scarce factor.Summary38For any given commodity pricesSummaryThe owners of a countrys abundant factors gain from trade, but the owners of scarce factors lose.In reality, complete factor price equalization is not observed because of wide differences in resources, ba

46、rriers to trade, and international differences in technology.Empirical evidence is mixed on the Heckscher-Ohlin model.Most researchers do not believe that differences in resources alone can explain the pattern of world trade or world factor prices.39SummaryThe owners of a country/Units of land used

47、to produce one calorie of food, aTFUnits of labor used to produce one calorie of food, aLF1Isocost linesAppendix: Factor Prices, Goods Prices, and Input ChoicesFigure 4A-1: Choosing the Optimal Land-Labor Ratio40/Units of land used to produc/12Appendix: Factor Prices, Goods Prices, and Input Choices

48、Figure 4A-2: Changing the Wage-Rental RatioUnits of land used to produce one calorie of food, aTFUnits of labor used to produce one calorie of food, aLFSlope = - (w/r)2Slope = - (w/r)141/12Appendix: Factor Prices, GFFCCSlope = - (w/r)Appendix: Factor Prices, Goods Prices, and Input ChoicesFigure 4A-

49、3: Determining the Wage-Rental RatioLand inputLabor input42FFCCSlope = - (w/r)Appendix: FFFCC1Slope = - (w/r)1CC2Slope = - (w/r)2Appendix: Factor Prices, Goods Prices, and Input ChoicesFigure 4A-4: A Rise in the Price of ClothLand inputLabor input43FFCC1Slope = - (w/r)1CC2Slope Chapter 4Resources an

50、d Trade:The Heckscher-Ohlin Model44Chapter 4Resources and Trade:TIntroductionA Model of a Two-Factor EconomyEffects of International Trade Between Two-Factor EconomiesEmpirical Evidence on the Heckscher-Ohlin ModelSummaryAppendix: Factor Prices, Goods Prices, and Input ChoicesChapter Organization45I

51、ntroductionChapter OrganizatiIntroductionIn the real world, while trade is partly explained by differences in labor productivity, it also reflects differences in countries resources.The Heckscher-Ohlin theory:Emphasizes resource differences as the only source of tradeShows that comparative advantage

52、 is influenced by:Relative factor abundance (refers to countries)Relative factor intensity (refers to goods)Is also referred to as the factor-proportions theory46IntroductionIn the real world,Assumptions of the ModelAn economy can produce two goods, cloth and food.The production of these goods requi

53、res two inputs that are in limited supply; labor (L) and land (T).Production of food is land-intensive and production of cloth is labor-intensive in both countries.Perfect competition prevails in all markets.A Model of a Two-Factor Economy47Assumptions of the ModelA Mode/Input combinations that prod

54、uce one calorie of foodUnit land input aTF ,in acres per calorieUnit land input aLF ,in hours per calorieA Model of a Two-Factor EconomyFigure 4-1: Input Possibilities in Food Production48/Input combinations Unit landFactor IntensityIn a world of two goods (cloth and food) and two factors (labor and

55、 land), food production is land-intensive, if at any given wage-rental ratio the land-labor ratio used in the production of food is greater than that used in the production of cloth: TF/LF TC/ LCExample: If food production uses 80 workers and 200 acres, while cloth production uses 20 workers and 20

56、acres, then food production is land-intensive and cloth production is labor-intensive.A Model of a Two-Factor Economy49Factor IntensityA Model of a TCCFFWage-rental ratio, w/rLand-laborratio, T/LA Model of a Two-Factor EconomyFigure 4-2: Factor Prices and Input Choices50CCFFWage-rental Land-laborA M

57、oFactor Prices and Goods PricesStolper-Samuelson Theorem (effect):If the relative price of a good increases, holding factor supplies constant, then the nominal and real return (in terms of both goods) to the factor used intensively in the production of that good increases, while the nominal and real

58、 return (in terms of both goods) to the other factor decreases.The reverse is also true.A Model of a Two-Factor Economy51Factor Prices and Goods PricesSSRelative price ofcloth, PC/PFWage-rentalratio, w/rA Model of a Two-Factor EconomyFigure 4-3: Factor Prices and Goods Prices52SSRelative price ofWag

59、e-rentalFFCCSSLand-labor Ratio, T/LRelativeprice ofcloth, PC/PFWage-rentalratio, w/r(PC/PF)1(TC/LC)2(TC/LC)1(TF/LF)2(TF/LF)1(w/r)2(w/r)1IncreasingIncreasingA Model of a Two-Factor EconomyFigure 4-4: From Goods Prices to Input Choices(PC/PF)253FFCCSSLand-RelativeWage-rentalAn increase in the price of

60、 cloth relative to that of food, PC/PF ,will:Raise the income of workers relative to that of landowners, w/r. Raise the ratio of land to labor, T/L, in both cloth and food production and thus raise the marginal product of labor in terms of both goods. Raise the purchasing power of workers and lower