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1). Heckscher-Ohlin model

The economic literature which approaches the problematic issue of international trade can be divided into two main lines. One of them has its roots in the classicalliterature of international trade by David Ricardo and continues with Heckscher-Ohlin theory.
The conclusion that we can get from these theories is that they demonstrate the free trade advantage and theinternational specialization.
The HO model resolves the ambiguity that underlying in the last cause of international exposed by Ricardo and expanded by neoclassical.
This model explains the basis ofcomparative advantage and it describes the trade effect on factor incomes.

1.1 . Assumptions

• Two nations, two goods and two factors of production.
• Both nations use the same technology
•The good X is labor-intensive and the good Y is capital-intensive
• Both goods are produced with constant returns to scale in both countries
• There is incomplete specialization of production in bothnations
• Equal preferences
• Perfect movement of factors in each nation but no international movement of factors.
• There are no transport costs, tariffs ...
• All resources are used for bothnations
• Trade is balanced in both countries
• Perfect competition in goods and factor markets in both nations.

2.1. Theorems

This model is presented in the form of two theorems:
• It predictsthe trade pattern  Each country has a comparative advantage so that it must exports the good that uses intensively (a greater proportion), the abundant factor in that country.
The country which isrich in labor exports the relatively labor-intensive goods and imports relatively capital-intensive goods.
China Europe
clothes 2 hours work 2 hours work
1 hour machinery 1 hour machinery
desks1 hour work 1 hour work
2 hours machinery 2 hours machinery
[e.g.] ,

If we assume that China has labor abundance and capital shortages in relation to Europe, the work will be cheaper in...
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