The Heckscher-Ohlin Essay

Custom Student Mr. Teacher ENG 1001-04 24 December 2016

The Heckscher-Ohlin

The Heckscher-Ohlin theorem of international trade argues that a capital abundant country is supposed to export those goods that are capital intensive while a country that is labor abundant is expected to export goods that are labor intensive, while David Ricardo argued that there should be free trade among countries and also there should be specialization among the individuals in production of any products.

Ricardo later assumes that there is mutual benefit in trade between two countries even if one country has the resources while the other lacks the resources. The Heckscher-Ohlin theory assumes that the two countries in trade are identical apart from the differences in their resource endowments. The abundance in capital results in the capital abundant country producing the capital intensive good (Ethier, 1974. ) When there is specialization and trade between two countries there will be an improvement in the standards of living in the two countries.

The Leontief paradox argues that trade is normally determined by the level of abundance of the factors of production in any economy. He found that although the USA was well endowed with capital it exported labor intensive products and imported capital intensive products. International trade is determined by endowment factors in any Nation. Those countries which have endowment factors for the manufacturers will trade with each other while countries with favorable factors for production of primary products will trade with each other.

A specific tariff is a fixed rate that is charged on a certain predetermined quantity for example$10 per Kilogram. An ad valorem tariff is a fixed percentage of the total value of the goods being imported. A compound tariff is a charge on a good comprising of both the specific tariff and the Ad Valorem Tariff.

REFERENCES LIST Ethier, W. 1974. Some of the theorems of international trade with many goods and factors. Journal of International Economics, v. 4; pp. 199–206.

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