Abstract
The Heckscher-Ohlin theory explains international trade as deriving from different relative factor endowments, given the same technology and the same omothetic utility functions in the two countries involved. This is the workhorse of the standard theory of international trade, from which a number of important consequences (such as the factor-price equalization theorem) follow. Hence it is thoroughly treated with particular care, including its extensions and generalizations.
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Notes
- 1.
The same problem would arise in the presence of many techniques, but limited in number, of the fixed-coefficients type, such as are dealt with by activity analysis.
- 2.
It is also possible to show that the opposite is true as well, i.e. that perfect international mobility of factors is a perfect substitute for free international trade. In other words, in a hypothetical model in which commodities are immobile (no international trade), but factors are perfectly mobile between countries, the equalization of factor prices (caused by their perfect mobility) will bring about the equalization of commodity prices across countries notwithstanding their immobility. See Mundell (1957) and Sect. 6.8, p. 146. See also Svensson (1984) for an examination of whether goods trade and factor mobility are necessarily substitutes or may be complements in particular cases.
- 3.
It cannot fall at F ′ or G ′ because, as stated repeatedly, the terms of trade cannot be equal to either pretrade autarkic equilibrium price ratio.
- 4.
- 5.
We refer the reader to that chapter for the problems related to the use of social indifference curves. With the occasion, we point out that Fig. 4.12 makes it possible to show the gains from trade in the same way as in Fig. 3.15. In the case of the Heckscher-Ohlin model with identical structures of demand, we can use the same diagram with the proviso that an identical family of social indifference curves (which, in addition, must be homothetic) must be used for both countries.
- 6.
This cannot be directly seen from the diagram, but from an inspection of the transformation curves. More simply, as \((p_{B}/p_{A})_{1} >\) R s , country 1 will find it profitable, when trade begins, to give up A in exchange for B and similarly, as \((p_{B}/p_{A})_{2} < R_{s}\), country 2 will give up B in exchange for A.
- 7.
For an explicit treatment of intermediate goods in the pure theory of international trade see below, Sect. 6.4.
- 8.
- 9.
Obviously, country 2 is running a trade balance deficit (its consumption exceeds production) and its factor content of trade vector is E C ′.
- 10.
In our example, for instance, if L is δ % more productive in country 1 than in country 2, so is K in exactly the same proportion δ. These are called Hicks neutral technology differences. For a more detailed definition see Sect. 13.5.1.
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Gandolfo, G. (2014). The Heckscher-Ohlin Model. In: International Trade Theory and Policy. Springer Texts in Business and Economics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-37314-5_4
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