heckscher ohlen

7/17/2019 heckscher ohlen

http://slidepdf.com/reader/full/heckscher-ohlen 1/58

The Heckscher-Ohlin Model:Features, Flaws, and Fixes

I: What's the H-O Model

Like?

Alan ! "eardor##

$ni%ersit& o# Michian



(ottinha) I *

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



(ottinha) I +

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



(ottinha) I 4

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



(ottinha) I 8

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



(ottinha) I >

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



(ottinha) I E


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)&



(ottinha) I

Lerner "iara)

L

B

A GHI 5 A

J

@ G H I 5

@

J

wBJ

wLJ



(ottinha) I K

Lerner "iara)

L

B

A GHI 5 A

J

@ G H I 5

@

J

9J

J

@J

wBJ

wLJ



(ottinha) I J

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



(ottinha) I


;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



(ottinha) I *


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



(ottinha) I +


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

, ),,,,(

,),/,,()(

, ),/,,(

, ),/,,(

==

==−=

==

==



(ottinha) I 4


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

, ),,,,,,(

,),,,/,,()(

, ),,,/,,(

, ),,,/,,(

==

==−=

==

==



(ottinha) I 8

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



(ottinha) I >

@

9B

@

cone

9##ects o# Increasin 9B

<&c=&nski Th): @9B,

rises with 9B



(ottinha) I E


9Bcone

<&c=&nski Th): Falls

with 9B



(ottinha) I


"@, "

9B

"@

cone

"



(ottinha) I K


9B

T@

cone

T

T@, T



(ottinha) I *J


wB

9Bcone

wL

9B

wB

wL

wBJ

wL

J



(ottinha) I *

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



(ottinha) I **

9##ects o# Increasin 5rice o# @, 5@

L

B

A GHI 5 A

J

@ G H I 5 @

J

wLJ

wBJ



(ottinha) I *+


L

B

A GHI 5 A

J

@ G H I 5 @

J

wLJ

wBJ



(ottinha) I *4


L

B

A GHI 5 A

J

@ G H I 5 @

J

wLJ

wBJ



(ottinha) I *8

@

5@

@

2cone3




(ottinha) I *>

5@

2cone3




(ottinha) I *E

5@

"@

2cone3


"@, "

"



(ottinha) I *

5@

T

2cone3


T@

T@, T



(ottinha) I *K

5@

wB

2cone3


wB

tol.er-a)uelson Th):

wB5@, wB5 rise with 5@



(ottinha) I +J

5@

wL

2cone3


wL tol.er-a)uelson Th):wL5@, wL5 #all with 5@



(ottinha) I +

9##ects o# Increasin 5rice o# , 5

9##ects are )irror i)ae o# increasin 5@



(ottinha) I +*

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



(ottinha) I ++

5resence o# Trade 1osts

L

B

G5w

@ G H I 5 @

w

wLw

wBw

91



(ottinha) I +4


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



(ottinha) I +8


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



(ottinha) I +>


L

B

G5w

@ G H I 5 @

w

wLw

wBw


I# countr& ex.orts

91

91@

91

autark&



(ottinha) I +E

9##ects o# Increasin 9B in 5resence

o# Trade 1osts

L

B

G5w

@ G H I 5 @

w

wLw

wBw


I# countr& ex.orts

91

91@

91

autark&



(ottinha) I +

autark&

9B

t*5@w5

w


o# Trade 1osts

@-ex.ort

cone

-ex.ort

cone

5@

w

5

w

t*

5@5



(ottinha) I +K

autark&

9B


o# Trade 1osts

@-ex.ort

cone

-ex.ort

cone

@



(ottinha) I 4J

autark&

9B


o# Trade 1osts

@-ex.ort

cone

-ex.ort

cone



(ottinha) I 4

autark&

9B


o# Trade 1osts

@-ex.ort

cone

-ex.ort

cone

T@, T

T

T@

9## # I i 9 i 5



(ottinha) I 4*


o# Trade 1ostswB

9B

wL

9B

wB

wL

autark&

@-ex.ort

cone

-ex.ort

cone

9## t # I i 5 5 i



(ottinha) I 4+

autark&

Pw G5@w5

w

9##ects o# Increasin 5@w5

w in


@-ex.ort

cone

-ex.ort

cone

@,

P A

2P A G5@ A5

A G

autark& .rice3

@

9## t # I i 5 5 i



(ottinha) I 44

autark&

Pw G5@w5

w


w in


@-ex.ort

cone

-ex.ort

cone

"@,"

P A

"

"@

9## t # I i 5 5 i



(ottinha) I 48

autark&

Pw G5@w5

w


w in


@-ex.ort

cone

-ex.ort

cone

T@,T

P A

T@

T

9## t # I i 5 5 i



(ottinha) I 4>

autark&

Pw G5@w5

w


w in


@-ex.ort

cone

-ex.ort

cone

wB5

P A

wB5

9## t # I i 5 5 i



(ottinha) I 4E

autark&

Pw G5@w5

w


w in


@-ex.ort

cone

-ex.ort

cone

wL5

P A

wL5



(ottinha) I 4

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!



(ottinha) I 4K

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



(ottinha) I 8J

autark&

t

9##ects o# Increasin Trade 1osts:

9xa).le

@-ex.ort

cone

@,

@

Th W ld M k t



(ottinha) I 8

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



(ottinha) I 8*

The World Market:


<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



(ottinha) I 8+

The World Market:


"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



(ottinha) I 84

5@5

RT@Q

2cone3

World 96uiliriu)

T@

T@, RT@Q

2cone3Q

25@53w

1 l i # th



(ottinha) I 88

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



(ottinha) I 8>


*/*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



(ottinha) I 8E


*/*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



WhatSs (ext?

M& .oint in the next lecture will e that

so)e o# these attracti%e .ro.erties are lost

in hiher di)ensions 0 i!e!, es.eciall&

when there are )ore than * o# oods andcountries

heckscher ohlen

Documents

Transcript of heckscher ohlen