Hecksher-Ohlin Model
Premise of the model
 2-country (Home and Foreign), 2-good (X and Y), 2-factor (Labour and Capital) economy.
- Full Employment.
- Zero Profit.
- Constant Returns of Scale (CRS).
- H and F have the same preference, and the same production technology.
- Free trade - no barriers, no transport costs.
- Production function is homothetic.
New terms
- Factor Abundance
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If H is endowed with relatively more L, H is "relatively L abundant". I.e. if KH/LH < KF/LF,
F is relatively K abundant and H is relatively L abundant.
Remember that absolute amount of resource endowment is not important.
- Factor Intensity
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If sector X requires relatively more L per unit production, X is "relatively L intensive". I.e.
if KX/LX < KY/LY, X is relatively L intensive and Y is relatively K intensive.
Remember that absolute amount of factor required is not important.
Throughout this section, we assume that H (F) is relatively L (K) abundant, and X (Y) is relatively
L (K) intensive.
- Autarky
- Trade
- Conclusion
 Ricardo Model - Edgeworth Box
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 Hecksher-Ohlin Model - Autarky
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 Basic Models
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Copyright © 1997, 1998, 2001 Dr MoonJoong Tcha
(mtcha@ecel.uwa.edu.au)
Web site created by
First Step Communications
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