International trade, tariffs, and the Heckscher-Ohlin theory
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an international economist you have been asked to prepare a short speech which answers the following questions:
1. How does the Heckscher-Ohlin theory differ from Ricardian theory in explaining international trade patterns?
2. The Heckscher-Ohlin theory demonstrates how trade affects the distribution of income within trading partners. Explain.
3. How does the Leontief paradox challenge the overall applicability of the factor-endowment model?
4. According to Staffan Linder, there are two explanations of international trade patterns-one for manufacturers and another for primary (agricultural) goods. Explain.
Following that speech, the audience asks you to respond to the following question:
Describe a specific tariff, an ad valorem tariff, and a compound tariff. What are the advantages and disadvantages of each?
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1. Ricardian theory argues that countries will fully specialize instead of producing a many goods when free trade is permitted. The Heckscher-Ohlin Model predicts that free trade between countries would permit those with abundant unskilled labor to have the advantage in goods which are intensive in unskilled labor while countries whose strengths are in capital and skilled labor would have the advantage in other goods. If the prices of the output goods are equalized between countries as they move to free trade, then the prices of the factors (capital and labor) will also be equalized between countries.
2. The Hecksher-Ohlin Model implies that free trade will equalize the wages of workers and the rents earned on capital throughout the world. Income will be redistributed from owners of a country's scarce factor, who will lose, to owners of a country's abundant factor, who will gain. As the capital adjusts between industries, outputs and wage rates also adjust. Because the expanding export industry is capital-intensive, its demand of capital per worker is greater than the amount of capital per worker that the labor-intensive import ...
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