Transcript Table 4-1

Chapter4 Resources and Trade:The
Heckscher-Ohlin Model
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Introduction
A Model of a Two-Factor Economy
Effects of International Trade Between Two-Factor
Economies
Empirical Evidence on the Heckscher-Ohlin Model
Summary
Appendix: Factor Prices, Goods Prices, and Input
Choices
1
Introduction

In 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 trade
– Shows that comparative advantage is influenced by:
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Relative factor abundance (refers to countries)
Relative factor intensity (refers to goods)
– Is also referred to as the factor-proportions theory
2
4-1 A Model of a Two-Factor Economy
 Assumptions of the Model
• An economy can produce two goods, cloth and food.
• The production of 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.
3
Figure 4-1: Input Possibilities in Food Production
Unit land input aTF ,
in acres per calorie
Input combinations
that produce one
calorie of food
//
Unit labor input aLF ,
in hours per calorie
4
– Factor Intensity
 In a world of two goods (cloth and food) and two
factors (labor and land), food production is landintensive, if at any given wage-rental ratio the landlabor ratio used in the production of food is greater than
that used in the production of cloth:
TF/LF > TC/ LC
– Example: If food production uses 80 workers and
200 acres, while cloth production uses 20 workers
and 20 acres, then food production is land-intensive
and cloth production is labor-intensive.
5
Figure 4-2: Factor Prices and Input Choices
Wage-rental
ratio, w/r
CC
FF
Land-labor
ratio, T/L
6

Factor Prices and Goods Prices
– Stolper-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 return (in terms of both goods) to the other
factor decreases.
– The reverse is also true.
7
Figure 4-3: Factor Prices and Goods Prices(P70)
Relative price of
cloth, PC/PF
SS
Wage-rental
ratio, w/r
8
Figure 4-4: From Goods Prices to Input Choices(P71)
Wage-rental
ratio, w/r
CC
FF
(w/r)2
(w/r)1
SS
Relative
(PC/PF)2 (PC/PF)1
price of
Increasing
cloth, PC/PF
(TC/LC)1 (TC/LC)2(TF/LF)1 (TF/LF)2 Landlabor
Increasing
Ratio, T/L
9

An increase in 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 workers and lower the
purchasing power of landowners, by raising real wages
and lowering real rents in terms of both goods.
10
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Resources and Output
– How is the allocation of resources determined?
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Given the relative price of cloth and the
supplies of land and labor, it is possible to
determine how much of each resource the
economy devotes to the production of each
good.
11
Figure 4-5: The Allocation of Resources(P73)
LF
1
TC
F
OC
Labor used in cloth production LC
Increasing
OF
C
TF
Land used in food production
Land used in cloth production
Increasing
Labor used in food production
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How do the outputs of the two goods
change when the economy’s resources
change?
– Rybczynski Theorem (effect):
 If a factor of production (T or L) increases, 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.
13
Increasing
Labor used in food production
L2F
O2 F
L1F
O 1F
1
T1C
T2 C
2
F2
OC
C
F1
Labor used in cloth production L2C
Increasing
L1C
T 1F
T 2F
Land used in food production
Land used in cloth production
Figure 4-6: An Increase in the Supply of Land（P74）
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Figure 4-7: Resources and Production Possibilities（P75）
Output of
food, QF
Slope = -PC/PF
2
Q2 F
Slope = -PC/PF
Q1
1
F
TT1
Q2 C Q 1 C
TT2
Output of
cloth, QC
15

An increase in the supply of land (labor) leads to a
biased expansion of production possibilities
toward food (cloth) production.
 The biased effect of increases (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.
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A、发达工业国家的相对资源禀赋情况
1980年发达工业国家资源禀赋的占有率
国家
有形
资本
非熟练
工人
可耕土 所有资源
地
美国
33。6 50。7 27。7 14。1
0。19
29。3
28。3
日本
15。5 23
8。7
11。5
0。25
0。8
11。2
西德
7。7
10
6。9
5。5
0。08
1。1
7。2
英国
4。5
8。5
5。1
4。9
0。09
1。0
5。1
法国
7。5
6
6
3。9
0。06
2。6
5
加拿
大
3。9
1。8
2。9
2。1
0。03
6。1
2。6
其他
国家
27。3 0
99。32
59。1
39。3
总计
100％ 100％ 100％ 100％
100％
100％
100％
科技
人员
熟练
工人
半熟练
工人
42。7 53
17
B、一些国家的资本/劳动比率
1990年一些国家的人均资本存量
发达国家
1990
发展中国家
1990
加拿大
47961
韩国
20644
西德
47441
哥伦比亚
15648
法国
42760
阿根廷
13972
日本
87197
智利
11670
美国
41514
5574
意大利
37612
泰国
菲律宾
西班牙
28911
2345
英国
23816
印度
肯尼亚
4239
1056
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4-2 Effects of International Trade Between
Two-Factor Economies
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Assumptions of the Heckscher-Ohlin model:
– There are two countries (Home and Foreign) that
have:
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Same tastes
Same technology
Different resources
– Home has a higher ratio of labor to land than Foreign
does
– Each country has the same production structure of
a two-factor economy.
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
Relative Prices and the Pattern of Trade
– Factor Abundance
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Home country is labor-abundant compared to Foreign country (and
Foreign is land-abundant compared to Home) if and only if the
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 landabundant.
In this case, the scarce factor in Home is land and in Foreign is
labor.
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– When Home and Foreign trade with each other,
their relative prices converge. The relative price
of cloth rises in Home and declines in Foreign.
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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 importer of cloth
and an exporter of food.
21
Figure 4-8: Trade Leads to a Convergence of Relative Prices
Relative price
of cloth, PC/PF
RS*
RS
3
2
1
RD
Relative quality
of cloth, QC + Q*C
Q F + Q *F
22
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Heckscher-Ohlin Theorem:
– A country will export that commodity which
uses intensively its abundant factor and import
that commodity which uses intensively its
scarce factor.
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案例：发达工业国家的出/进口比率
产品
美国
日本
西德
法国
英国
加拿大
技术密
集型
服务
1.52
5.67
2.4
1.38
1.39
0.77
1.47
0.73
0.8
1.32
1.19
0.5
标准化
产品
劳动密
集型
初级产
品
0.39
1.09
0.84
1.03
0.76
1.38
0.38
1.04
0.59
0.86
0.71
0.2
0.55
0.04
0.29
0.52
0.81
2.21
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Trade and the Distribution of Income
– Trade produces a convergence of relative prices.
– Changes in relative prices have strong effects on the
relative earnings of labor and land in both countries:
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In Home, where the relative price of cloth rises:
– Laborers are made better off and landowners 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 country’s abundant factors gain from trade, but
owners of a country’s scarce factors lose.
25
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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.
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Example: Garment makers cannot become computer
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.
26

Factor Price Equalization
– In the absence of trade: labor would earn less in
Home than in Foreign, and land would earn more.
– Factor-Price Equalization Theorem:
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International trade leads to complete equalization in the
relative and absolute returns to homogeneous factors
across countries.
It implies that international trade is a substitute for the
international mobility of factors.
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– Has international trade equalized the returns to
homogeneous factors in different countries in the
real world?
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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.
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Under these circumstances, it is more realistic to say
that international trade has reduced, rather than
completely eliminated, the international difference in
the returns to homogeneous factors.
28
Table 4-1: Comparative International Wage Rates (United States = 100)
（P79）
29
– Three assumptions crucial to the prediction of
factor price equalization are in reality untrue:
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Both countries produce both goods
Both countries have the same technologies in
production
Both countries have the same prices of goods due to
trade
– One thing the factor-price equalization theorem
does not say is that international trade will
eliminate or reduce international differences in per
capita incomes.
30
Table 4-2: Composition of Developing-Country Exports
(Percent of Total)（P80，case）
31
发达工业国家制造业的每小时工资与美国的比率
国家
日本
意大利
法国
英国
西德
一般平均
美国
1959
11
23
27
29
29
24
100
1976
24
42
41
35
56
40
100
1985
51
62
62
53
84
62
100
1993
108
111
104
90
128
108
100 32
4-3 Empirical Evidence on the HeckscherOhlin Model

Testing the Heckscher-Ohlin Model
– Tests on U.S. Data
 Leontief paradox
– Leontief found that U.S. exports were less capital-intensive than
U.S. imports, even though the U.S. is the most capital-abundant
country in the world.
– Tests on Global Data
 A 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.
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Table 4-3: Factor Content of U.S. Exports and Imports for 1962
34
1947年主要的净出口和净进口行业以及资本/劳动
比率（美元/工人）
净出口
资本/劳动
净进口
资本/劳动
1、批发贸易
7638
农业和渔业
29689
2、机动车辆
10447
纸和纸箱厂
11123
3、谷物制品
20752
橡胶
17848
4、纺织产品：纺织、 10738
编织和印染
榨汁机
12108
5、铁路运输
21022
食品：罐头、保鲜及冷 15635
冻
6、海洋运输
15945
其他非铁矿（不包括铜、16205
铅、锌和铝）
7、钢制品和轧钢机
15273
原油及天然气
29508
8、采煤
8491
狩猎器具
14259
9、特殊的工业机械
10439
原生铜
20080
10、石油产品
27139
其他原生金属（不包括 1634435
铅、铜及铝）
b、克拉维斯(Kravis)，1956年
C、基辛（Keesing)，1966年
d、鲍得温(Baldwin)，1971年
e、布朗逊(Branson)和莫挪尤斯(Monoyios)，
1977年
f、利默尔(Leamer)，1980，1984年
g、斯特思(Stern)和马斯库斯(Maskus)，1981年
h、萨尔瓦托(Salvatore)和巴拉扎什(Barazesh)：
1990年
36
– Tests on Global Data
 A 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.
37
Table 4-4: Testing the Heckscher-Ohlin Model(P84)
38
– Tests on North-South Trade
 North-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 Trade
 A study by Trefler in 1995 showed that
technological differences across a sample of
countries are very large.
39
Table 4-5: Trade Between the United States and South Korea,
1992 (million dollars)(P84）
40
Table 4-6: Estimated Technological Efficiency,
1983 (United States = 1)
41

Implications of the Tests
– Empirical 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 useful as a way to analyze the effects of
trade on income distribution.
42
Summary
 The 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 relative 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.
43
Summary

For any given commodity prices, an increase 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
commodity which uses intensively its scarce factor.
44
Summary
The owners of a country’s 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,
barriers to trade, and international differences in
technology.
 Empirical evidence is mixed on the HeckscherOhlin model.

– Most researchers do not believe that differences in
resources alone can explain the pattern of world trade
or world factor prices.
45
Appendix: Factor Prices, Goods Prices,
and Input Choices
Figure 4A-1: Choosing the Optimal Land-Labor Ratio
Units of land used
to produce one
calorie of food, aTF
Isocost lines
1
//
Units of labor used to
produce one calorie
of food, aLF
46
Appendix: Factor Prices, Goods Prices,
and Input Choices
Figure 4A-2: Changing the Wage-Rental Ratio
Units of land used
to produce one
calorie of food, aTF
2
Slope = - (w/r)2
1
//
Slope = - (w/r)1
Units of labor used to
produce one calorie
of food, aLF
47
Appendix: Factor Prices, Goods Prices,
and Input Choices
Figure 4A-3: Determining the Wage-Rental Ratio
Land input
FF
Slope = - (w/r)
CC
Labor input
48
Appendix: Factor Prices, Goods Prices,
and Input Choices
Figure 4A-4: A Rise in the Price of Cloth
Land input
FF
Slope = - (w/r)2
Slope = - (w/r)1
CC2
CC1
Labor input
49
Reading

邹薇(2002):论竞争力的源泉: 从外生比
较优势到内生比较优势,《武汉大学学报
(社会科学版)》，1月
50
Question

P87,2
 思考：美国经济的不断开放是导致近年
来收入不平等日益扩大的主要原因吗？
中国呢？
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