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The HEckscher-Ohlin Model



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4 The Heckscher Ohlin Model 1 H O Model 2 Empirical Evidence 3 Conclusions Introduction The Heckscher Ohlin model HO shows how trade occurs because countries that have different resources They wanted to explain this increase in trade during the golden age of international trade H O assumed that technologies were the same across countries but had an uneven distribution of resources 2008 Worth Publishers International Economics Feenstra Taylor 2 of 113 Introduction The specific factors model in the last chapter was a short run model since capital and labor could not move between industries The HO model is a long run model because all factors of production can move between the industries Generalizations Many factors and goods Differing productivities 2008 Worth Publishers International Economics Feenstra Taylor 3 of 113 Heckscher Ohlin Model Two countries Home and Foreign Two goods computers and shoes Two factors of prod n labor L and capital K Resource constraint equations Capital in each good for each country K KC KS and K K C K S Labor in each good for each country L LC LS and L L C L S 2008 Worth Publishers International Economics Feenstra Taylor 4 of 113 Assumptions of the Heckscher Ohlin Model 1 Both factors can move freely between industries R and W must be the same in both industries 2 Shoe production is labor intensive it requires more labor per unit of capital to produce shoes than computers so that LS KS LC KC This means that computer production is capitalintensive Figure 4 1 shows relative demand curves for labor in each industry 2008 Worth Publishers International Economics Feenstra Taylor 5 of 113 Assumptions of the Heckscher Ohlin Model Figure 4 1 2008 Worth Publishers International Economics Feenstra Taylor 6 of 113 Assumptions of the Heckscher Ohlin Model 3 Foreign is labor abundant Equivalently Home is capital abundant L K L K and K L K L Here we do not consider why the amount of resources differs across countries Take as given 4 The final outputs



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