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Q. Countries do not in fact export the goods the H.O. theory predicts. Discuss.
Answer: This statement isn't true that though one may find several cases where it seems to be true (e.g. the Leontieff Paradox), all one requires to do in order to render the above statement not (generally) true is to find one counter example. Actually, one is able to find large subsets of agricultural and commodity products in which the H.O predictions are usually fulfilled. Labor-intensive countries for instance Bangladesh does in fact export relatively labor-intensive goods. Capital-intensive countries for instance Germany does in fact export capital-intensive products at least to South countries. Countries for illustration Costa Rica ("sunshine abundant") tend to export bananas (sunshine-intensive products). The U.S. (a wheat-land -abundant country) does certainly export wheat (a wheat-land intensive product). Actually, ever since the early 1980s, the Leontieff Paradox wasn't found to describe the U.S. trade data therefore ratifying the H.O. theory.
I need to use the gravity model to analyse the effects of the euro on tradeflows. is this something u can do?
Q. Explain Purchasing Power Parity. Answer: PPP () states that the exchange rate between two countries' currencies equals the ratio of the countries' price levels.
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