heckscher ohlen
DESCRIPTION
hecscher model of tradeTRANSCRIPT
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The Heckscher-Ohlin Model:Features, Flaws, and Fixes
I: What's the H-O Model
Like?
Alan ! "eardor##
$ni%ersit& o# Michian
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The)es o# the + Lectures
The HO Model is larel& well eha%ed in *di)ensions, e%en when &ou include tradecosts
In hiher di)ensions, it is not so welleha%ed, es.eciall& when &ou includetrade costs
arious )odi#ications and extensions o#the HO )odel o##er so)e .ro)ise o#)akin it eha%e etter
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Outline o# Lecture I
O%er%iew o# the H-O Model
The */* Model
0 Without trade costs 0 With trade costs
The */*/* Model
1onclusions #ro) the */*2/*3 Model
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H-O O%er%iew
The Heckscher-Ohlin 2H-O3 Model Assu).tions 0 Ho)oeneous oods and #actors 0 5er#ectl& co).etiti%e )arket e6uiliriu) throuhout
2oods and #actors3
0 5roduction #unctions 1onstant returns to scale (on-7oint
0 Factors 5er#ectl& )oile across industries 5er#ectl& i))oile across countries
0 1ountries di##er in #actor endow)ents 0 Industries di##er in #actor intensities
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H-O O%er%iew
The Heckscher-Ohlin 2H-O3 Model I).lications
0 1ountries ex.ort oods that use intensi%el& their
aundant #actors 2H-O Th)3
0 Trade draws #actor .rices closer toether acrosscountries, eco)in e6ual in certain circu)stances
2F59 Th)3
0 Trade chanes real #actor .rices 2- Th)3
;ene#itin owners o# aundant #actors Hurtin owners o# scarce #actors
0 <&c=&nski Th) 2out.ut e##ects o# #actor
accu)ulation3
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The Textook */* H-O Model
oods @,
Factors B, L
@ is B-intensi%e oods are #inal oods
Trade is
0 Free and #rictionless, or 0 u7ect to si).le, constant trade costs .er
unit 2.erha.s CiceerD3
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The Textook */* H-O Model
Anal&sis: 9x.anded Lerner "iara)shows 0 5roduction
0 Factor allocations
0 Factor 5rices
0 Trade
#or i%en 0 oods .rices
0 Factor endow)ents
Thus 0 Full solution #or
s)all o.enecono)&
0 "e.endence on.rices #or lareecono)&
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Lerner "iara)
L
B
A GHI 5 A
J
@ G H I 5
@
J
wBJ
wLJ
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Lerner "iara)
L
B
A GHI 5 A
J
@ G H I 5
@
J
9J
J
@J
wBJ
wLJ
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Lerner "iara)
L
B
A GHI 5 A
J
@ G H I 5
@
J
9J
@1
J
91
@J
1
wBJ
wLJ
G 9W
9x.ort
I).ort
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The Textook */* H-O Model
;eha%ior
0 I# 9ndow)ents inside "i%ersi#ication 1one
;oth oods .roduced
Factor .rices inde.endent o# endow)ents
0 I# 9ndow)ents outside "i%ersi#ication 1one
One ood .roduced
Factor .rices de.end on endow)ents
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The Textook */* H-O Model
ensiti%it& 0 All %ariales 2out.uts, trade, #actor .rices3 are
uni6uel& deter)ined and de.end s)oothl& on
9ndow)ents 5rices
0 Addin trade costs %is a %is a sinle othercountr&
1reates rane o# world .rices #or which countr&does not trade
Outside that rane, all %ariales de.end s)oothl&on trade costs
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The Textook */* H-O Model
u))ar&
0 With #ree and #rictionless trade:
L K J P P E E ww
Y X I P P E E T DS T
Y X I P P E E D D
Y X I P P E E S S
Y X L K j J
Y X L K I I I I
Y X L K I I
Y X L K I I
, ),,,,(
,),/,,()(
, ),/,,(
, ),/,,(
==
==−=
==
==
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The Textook */* H-O Model
u))ar&
0 With iceer trade costs, t :
L K J t t P P E E ww
Y X I t t P P E E T DS T
Y X I t t P P E E D D
Y X I t t P P E E S S
Y X Y X L K j J
Y X Y X L K I I I I
Y X Y X L K I I
Y X Y X L K I I
, ),,,,,,(
,),,,/,,()(
, ),,,/,,(
, ),,,/,,(
==
==−=
==
==
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9##ects o# Increasin 1a.ital
9ndow)ent, 9B
L
B
A GHI 5 A
J
@ G H I 5
@
J
wLJ
wBJ
9B
cone
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@
9B
@
cone
9##ects o# Increasin 9B
<&c=&nski Th): @9B,
rises with 9B
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9##ects o# Increasin 9B
9Bcone
<&c=&nski Th): Falls
with 9B
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9##ects o# Increasin 9B
"@, "
9B
"@
cone
"
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9##ects o# Increasin 9B
9B
T@
cone
T
T@, T
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9##ects o# Increasin 9B
wB
9Bcone
wL
9B
wB
wL
wBJ
wL
J
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9##ects o# Increasin Laor
9ndow)ent, 9L
L
B
A GHI 5 A
J
@ G H I 5 @
J
wLJ
wBJ
9L
9##ects are
)irror i)ae o#increasin 9B
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9##ects o# Increasin 5rice o# @, 5@
L
B
A GHI 5 A
J
@ G H I 5 @
J
wLJ
wBJ
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9##ects o# Increasin 5rice o# @, 5@
L
B
A GHI 5 A
J
@ G H I 5 @
J
wLJ
wBJ
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9##ects o# Increasin 5rice o# @, 5@
L
B
A GHI 5 A
J
@ G H I 5 @
J
wLJ
wBJ
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@
5@
@
2cone3
9##ects o# Increasin 5rice o# @, 5@
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5@
2cone3
9##ects o# Increasin 5rice o# @, 5@
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5@
"@
2cone3
9##ects o# Increasin 5rice o# @, 5@
"@, "
"
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5@
T
2cone3
9##ects o# Increasin 5rice o# @, 5@
T@
T@, T
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5@
wB
2cone3
9##ects o# Increasin 5rice o# @, 5@
wB
tol.er-a)uelson Th):
wB5@, wB5 rise with 5@
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5@
wL
2cone3
9##ects o# Increasin 5rice o# @, 5@
wL tol.er-a)uelson Th):wL5@, wL5 #all with 5@
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9##ects o# Increasin 5rice o# , 5
9##ects are )irror i)ae o# increasin 5@
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9##ects o# 5resence o# Trade 1osts
Assu)e iceer trade cost t−J, e6uals
#raction o# each ood that disa..ears in transit to
world )arket 2)ust shi. t #or to arri%e3
I).lication #or do)estic .rices i# world .rices areP X w , P Y w :
0 I# countr& ex.orts @: P X =P X w t P Y =tP Y w
0 I# countr& ex.orts : P Y =P Y w t P X =tP X w
0 I# countr& does not trade:
2P X w P Y w 3t * N P X P Y N t *2P X w P Y w 3
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5resence o# Trade 1osts
L
B
G5w
@ G H I 5 @
w
wLw
wBw
91
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5resence o# Trade 1osts
L
B
G5w
@ G H I 5 @
w
wLw
wBw
I# countr& ex.orts @
91
91@
which it will i# endow)ent
is ao%e this line
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5resence o# Trade 1osts
L
B
G5w
@ G H I 5 @
w
wLw
wBw
I# countr& ex.orts
91
which it will i# endow)ent
is elow this line
91
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5resence o# Trade 1osts
L
B
G5w
@ G H I 5 @
w
wLw
wBw
I# countr& ex.orts @
I# countr& ex.orts
91
91@
91
autark&
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9##ects o# Increasin 9B in 5resence
o# Trade 1osts
L
B
G5w
@ G H I 5 @
w
wLw
wBw
I# countr& ex.orts @
I# countr& ex.orts
91
91@
91
autark&
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autark&
9B
t*5@w5
w
9##ects o# Increasin 9B in 5resence
o# Trade 1osts
@-ex.ort
cone
-ex.ort
cone
5@
w
5
w
t*
5@5
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autark&
9B
9##ects o# Increasin 9B in 5resence
o# Trade 1osts
@-ex.ort
cone
-ex.ort
cone
@
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autark&
9B
9##ects o# Increasin 9B in 5resence
o# Trade 1osts
@-ex.ort
cone
-ex.ort
cone
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autark&
9B
9##ects o# Increasin 9B in 5resence
o# Trade 1osts
@-ex.ort
cone
-ex.ort
cone
T@, T
T
T@
9## # I i 9 i 5
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9##ects o# Increasin 9B in 5resence
o# Trade 1ostswB
9B
wL
9B
wB
wL
autark&
@-ex.ort
cone
-ex.ort
cone
9## t # I i 5 5 i
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autark&
Pw G5@w5
w
9##ects o# Increasin 5@w5
w in
5resence o# Trade 1osts
@-ex.ort
cone
-ex.ort
cone
@,
P A
2P A G5@ A5
A G
autark& .rice3
@
9## t # I i 5 5 i
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autark&
Pw G5@w5
w
9##ects o# Increasin 5@w5
w in
5resence o# Trade 1osts
@-ex.ort
cone
-ex.ort
cone
"@,"
P A
"
"@
9## t # I i 5 5 i
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autark&
Pw G5@w5
w
9##ects o# Increasin 5@w5
w in
5resence o# Trade 1osts
@-ex.ort
cone
-ex.ort
cone
T@,T
P A
T@
T
9## t # I i 5 5 i
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autark&
Pw G5@w5
w
9##ects o# Increasin 5@w5
w in
5resence o# Trade 1osts
@-ex.ort
cone
-ex.ort
cone
wB5
P A
wB5
9## t # I i 5 5 i
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autark&
Pw G5@w5
w
9##ects o# Increasin 5@w5
w in
5resence o# Trade 1osts
@-ex.ort
cone
-ex.ort
cone
wL5
P A
wL5
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9##ects o# Increasin Trade 1osts
As trade cost, t , rises #ro) =ero, -ex.ort
cone and the @-ex.ort cone )o%e #urther
a.art, and the Cautark&D rane o# #actor
endow)ents and world .rices ets larer
For an& i%en endow)ent and world
.rices, a rise in t reduces the %olu)e o#
trade and )o%es other %ariales in thedirection o# their autark& %alues!
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9##ects o# Increasin Trade 1osts
9xa).le:
0 1onsider a countr& whose #actor endow)ents
ha%e it co).letel& s.eciali=ed in ood @ at
world .rices
9## t # I i T d 1 t
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autark&
t
9##ects o# Increasin Trade 1osts:
9xa).le
@-ex.ort
cone
@,
@
Th W ld M k t
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The World Market:
The Textook */*/* H-O Model
To )odel the world econo)&, add a second
countr& 2countr& CQD3
ol%e #or world 2relati%e3 .rice that clears the
world )arket)/,,()/,,( ***
Y X L K X Y X L K X P P E E T P P E E T −=
Th W ld M k t
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The World Market:
The Textook */*/* H-O Model
<esults
with analoous ex.ressions #or the other
countr&
L K J P E E E E ww
Y X I E E E E T T
Y X I E E E E D D
Y X I E E E E S S
Y L K L K j J
L K L K I I
L K L K I I
L K L K I I
,),,,,,(
, ),,,,(
, ),,,,(
, ),,,,(
**
**
**
**
==
==
==
==
Th W ld M k t
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The World Market:
The Textook */*/* H-O Model
"e.ictions o# world e6uiliriu)
0 O##er cur%es 2Meade3
0 Interated-world-econo)& diara) 2"ixit-(or)an3
0 u##icient 2ut not eleant3 to use su..l& andde)and o# 7ust one o# the oods
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5@5
RT@Q
2cone3
World 96uiliriu)
T@
T@, RT@Q
2cone3Q
25@53w
1 l i # th
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1onclusions #ro) the
*/*2/*3 H-O Model
96uiliria are well de#ined
96uiliriu) 6uantities are uni6ue
96uiliriu) .rices are uni6ue u. to anu)eraire
1 l i # th
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1onclusions #ro) the
*/*2/*3 H-O Model
Includes three t&.es o# e6uiliria
0 Autark& 2when there are trade costs3
0 "i%ersi#ied
0 .eciali=ed
"eter)inants o# e6uiliriu) t&.e are
)ostl& clear
e%eral relationshi.s etween %ariales
de.end i).ortantl& on t&.e o# e6uiliriu)
1 l i # th
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1onclusions #ro) the
*/*2/*3 H-O Model
1lassic CTheore)sD are clear and .recise
1ountries s.eciali=e, ut onl& i# endow)entdi##erences are lare
5rices and 6uantities %ar& continuousl& withexoenous chanes in 0 9ndow)ents
0 Trade costs
In .articular, trade res.onds sensil& to 0 5rices and
0 Trade costs