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Heckscher-Ohlin-Samuelson Model

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Answer questions based on the following excerpt from a speech given by Pascal Lamy, Director-General of the World Trade Organization, on Sept. 6, 2006

"China has fundamental interest in an ambitious outcome itn these negotiations. Givenits relative openness, it has an offensive interest in ensuring a decrease of tariffs for many of its key manufactures in many third countries. On agriculture, having become a net food importer, the Doha negotiations can help China ensure adequate supply of food for its growing population at affordable and stable prices. Further reduction of trade-distorting agriculture subsides in developed countries will also benefit China's agriculture production. A further opening of its services market can contribute to China's thriving economy in sectors such as banking, telecommunications, insurance, and transport services."

A) Lamy's comments suggest that China has a comparative advantage in which sector(s)? The comments also suggest that China does NOT have a comparative advantage in which sector(s)? Explain your answers.

B) Lamy's comments suggest that China is both an importer and an exporter of agricultural goods. Of the 5 models we've learned in class, which one(s) would support this existence of incomplete specialization? Which is (are) inconsistent with the incomplete specialization we observe in China?

MODELS LEARNED IN CLASS: Theory of comparative advantage(Ricardian Model), Specific Factors Model, Heckscher-Ohlin-Samuelson Model, Standard Trade Model, Imperfect Competition Model(New Trade Theory)>

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Solution Summary

Heckscher-Ohlin-Samuelson Model is applied in China's case.

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A) Lamy's comments suggest that China has a comparative advantage in which sector(s)? The comments also suggest that China does NOT have a comparative advantage in which sector(s)? Explain your answers.

According to Lamy's comments China especially have competitive advantages in the manufacturing sector due to its relative openness and, government's efforts to decrease tariffs. It is very clear that the government provides ...

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Umut Oltulu, MBA
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  • BSc, Dokuz Eylul University
  • MBA, Texas A&M University-Kingsville
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