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    European Union and the Leontief statitistic

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    The European Union has heavily protected its farm sector through import duties; in addition, the Union subsidizes its exports of agricultural products. If "cropland" is regarded as a factor of production and is included in the Leontief statistic (along with, say, labor), how would the presence of these agricultural policies affect the results of such tests?

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    HO Theory is based on factor price endowment. We can understand this by constructing a ratio of a factor to other factors, and comparing these ratios between two countries. The country with the higher ratio has the relative factor abundance. Or, we can say that a county is relatively abundant in a factor if its cost before trade is lower than is the foreign cost of that factor.

    So, we then predit that countries export those goods which require relatively intensive use of those ...

    Solution Summary

    The European Union's agriculture subsidies and how they impact Leontief statistical tests.