Reference no: EM1375175
In the Ricardian model, everyone seems to benefit from trade. However, the Heckscher-Ohlin model seems to show that some lose from trade as well. Who are the losers in the HO model, and how do they not benefit from trade?
Ricardo stated that countries specialize in producing those products which they produced best. Countries do not specialize in producing vast number of goods rather concentrate on only those in which they have maximum advantage.
He assumed that labor is the basic factor of production, its productivity is constant (MPL), is perfectly mobile in different sectors but not internationally, there exists perfect competition and limited amount of labor in the economy
The H-O theory advocates that countries should produce and export only those products for which they had abundance of factors of production and import only the products for which they are deficient in factors.
The Heckscher-Ohlin theory assumes that labor and capital move freely between different sectors, some products are labor intensive while others capital; there exists difference in the amount of capital and labor in different countries, the trade is free, same technologies exist in long term across the boundaries and tastes of the people are same
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