Homework in “International Economics”
1. The Heckscher-Ohlin model
The Heckscher-Ohlin model is a mathematical model of the international trade and its balance. It is established upon the theory of David Ricardo for the competitive advantage and it strives to predict the arrangements of the international trade and production, which are based on the capacity of a given country to trade. Its essence consist in the statement that the countries that produce, will be exporting the goods, which manufacturing use their plentful and cost-competitive factors and will import goods that use the scarce factors of the country. Here we are talking about the factors of production, which are the land, labour and capital. Their abundance or their lack defines in which products the country has a competitive advantage. Meaning that they have advantage for producing those goods, for which the necessary factors and inputs are abundant in the country, therefore it is cheaper to produce them locally and export them instead of importing them. We can give the example of country like Belgium – here the labor and the land factors are not abundant, therefore the goods that require for the production those factors will be imported, because then it will be more cost effective. And vice-versa, because in Belgium there are a lot of engineers, technicians and it is rather well technologically developed country, it will be more advantageous to export goods, which require for their production those abundant factors – for ex. computers, IT etc. 2. Criticism on the H-O model & Leontief Paradox
There is much criticism upon that model; therefore I’m going to state the most important of it here: * The little predictive power of that model, which was a critic by Bernstein and Weinstein, who claimed that the H-O model and its factor endowments of each country are not a reliable forecast. * The identical production function – the H-O model postulate that the production functions are...
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