Advantages Of Heckscher Ohlin Model - amazonia.fiocruz.br

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The Nobel Prize in Economics for was awarded to Bertil Ohlin and James Meade for their works on various aspects of Modell trade and cross-border capital movements. As the Nobel Prize website informs us, Ohlin developed a theory of modern international trade wherein he detailed factors that determine the pattern of international trade and the effects of trade on allocation of resources and income distribution.

Adam Simith’s model

Stabilisation policies are essentially those that are necessary to maintain external balance and internal balance i. As the Nobel website notes:. It has become increasingly clear that problems related to the allocation of resources, business cycles, and the distribution of income are very much international problems.

This means that foreign trade, international price fluctuations, the international allocation of economic activities and the transfer of resources, as well as the international payments system have become dominant factors in economic analysis and economic policy. In this article, we will review the works of Ohlin and Meade and see how they are still important for economic and trade policy.

2.1.1. Free trade

Ohlin completed his undergraduate studies at the University of Lund in Sweden in Mathematics, Statistics and Economics in He got his M. He returned to the University of Stockholm and completed his Ph. He joined University of Copenhagen as a Professor in There is an interesting anecdote that Ohlin shares in his Nobel speech.

It presented equation systems as a basis of an analysis of the causes Advantages Of Heckscher Ohlin Model effects of international trade. As we know, Ricardo had modified the absolute advantage theory of Adam Smith.

According to the absolute advantage theory, two trading partners can benefit from trade if they produce their respective goods at lower Heckwcher than their trading partner and then exchange them.

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Ricardo, on the other hand, argued that even if a country did not have absolute advantage in producing goods, it could still gain from trade because of comparative advantage. This essentially means that even if a country is less efficient than its trading partner in producing both goods assuming that there are two countries and two goodsit could produce that good, in which it is relatively more efficient and exchange it for the other good. To elaborate, in capital-abundant countries, wage rates tend to Heckschdr high; therefore, labour-intensive products are more costly to produce internally. In contrast, capital-intensive products are less costly to produce internally. Countries with large amounts of capital will therefore export capital-intensive products and import labour-intensive products with the revenues Advantages Of Heckscher Ohlin Model from the exports.

Labour-abundant countries will do the reverse.]