国际贸易英语第三章讲义

International Trade Theories

Chapter 3 Modern Trade Theories (2)

This chapter examines four more modern trade theories: the H-O theory of factor endowments, Leontief paradox, the product life-cycle theory and the “Gravity” of trade model.

The Heckscher-Ohlin Theory (of Factor Endowment)

(1) The meaning of the Heckscher-Ohlin theory

Although sometimes this theory is also referred to as the Heckscher-Ohlin model or the factor endowment model, more often that not it is called the Heckscher-Ohlin theory or simply the H-O theory. H-O theory is one of the most influential theories in modern international economics according to which international trade is largely driven by differences in countries’ resources (land, labor and capital). This theory is called this way, because it is developed by the two well-known Swedish economists, Eli Heckscher and his student, Bertil Ohlin (He received the Nobel prize in economics in 1977).

(2) Major points of view in the H-O theory

The following is a brief introduction to the chief points of view made by Heckscher and Ohlin.

● Different nati ons have different factor endowments and different factor endowments explain differences in factor costs.

● Differences in relative factor endowments and factor price constitute the most im portant explanation of the basis for (international) trade.

● A nation will export the commodity in the production of which a relative large amount of its relatively abundant and cheap resources is used. Conversely it will imports commodities in the production of which a relatively large amount of its relatively scarce and expensive resources is used.

● With trade the relative differences in resources prices between nations tend to be eliminated or to be equalized as result of continuous specialization in the production of the commodity of a nation’s comparative advantage.

● H-O theory also emphasizes the interplay between the proportions in which different factors of production are available in different countries and proportions in which they are used in producing different goods or commodities. That is why the Heckscher-Ohlin theory is sometimes also referred to as the factor-proportions theory.

(3) Comparison between the H-O theory and Ricardo’s theory of comparative advantage

● Main similarity Like Ric ardo’s theory H-O theory also argues that free trade is beneficial to trading nations.

● Chief dissimilarity The biggest difference between Ricardo’s trade theory and H-O theory is that, when explaining the basis for trade Ricardo places primary reliance on factor productivity while the H-O theory sheds more light on other important trade issues such as the influence of resource supplies or factor endowment supplies on international specialization and the influence of trade on the distribution of income. To put it in a simple way, unlike Ricardian trade theory which takes factor productivity difference as the main basis for trade, the H-O theory, in explaining the main reason for trade, delegates primary importance to the factor endowments nations enjoy.

(4) Illustrations

Some examples can be easily given to show how H-O theory works.

● The United States has long been a substantial exporter of agricultural goods, reflecting in part its unusual abundance of large tracts of arable land.

● South Korea and Chin a have excelled in the export of goods produced in labor-intensive manufacturing industries as textiles, clothing and footwear. This fact reflects South Korea’s and China’s relative abundanc e of low-cost labor. In contrast, the United States, which lacks abundant low-cost labor, has been a primary importer of these goods.

● Brazil exports a lot coffee because it has an abundance of the soil and favorable climate conditions required for coffee’s production.

(5) Comment on H-O theory

Undoubtedly the H-O theory has been one of the most influential and popular trade theories in international economics. Most economists prefer this theory to Ricardo’s because it makes fewer simplifying assumptions. However, the H-O theory is not perfect. It fails to:

● Explain why U.S. exports were less capital intensive (the U.S. is relatively ab undant in capital.) than U.S. imports. The U.S. exports goods that use skilled labor and innovative entrepreneurship while importing manufactures that use large amount of capital.

● Turn enough attention to the increasing importance of the roles played by science and technology in the international division of labor and international trade.

● Touch on the maximization of profit-seeking as one of the most fundamental reasons for capitalist countries to trade with other countries.