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1、Copyright 2002, South-Western College PublishingInternational EconomicsBy Robert J. Carbaugh8th EditionChapter 4:Trade Model Extensions and ApplicationsFactor endowment theory (Heckscher-Ohlin)wComparative advantage is explained entirely by different national supply conditions, especially resource e
2、ndowmentswNations export products that use inputs which are relatively abundant (cheap) at home, and import products which need inputs which are relatively scarce (expensive) at homeWhy relative price differentials?2Factor endowment theory: assumptionswNations all have the same tastes and preference
3、s (same indifference curves)wThey use factor inputs which are of uniform qualitywThey all use the same technologyWhy relative price differentials?3Comparative advantage according to factor endowment theoryFactor endowment modelAutarky equilibrium4Comparative advantage according to factor endowment t
4、heoryFactor endowment modelPost-trade equilibrium5Factor endowment theory: implicationswFactor price equalizationThe shift within each nation towards use of cheaper factors, and away from expensive ones, leads to more equal factor priceswDistribution of incomeTrade changes domestic distribution of i
5、ncome as demand for different factors changesFactor endowment model6Economies of scale & specializationwEconomies of scale provide incentives for specialization, since per unit costs go down as production increases wTrade provides a larger potential market for products, making higher production leve
6、ls possibleBringing theory closer to reality7Economies of scale as basis for tradeEconomies of scale8Trade & specialization under decreasing costsEconomies of scale9Other extensions of the theorywOverlapping demandswIntra-industry tradewProduct cycleswDynamic comparative advantage - industrial polic
7、yBringing theory closer to reality10Free trade under increasing costsTransportation costsNo transportation costs11Free trade under increasing costsTransportation costsTransportation costs of $2000 per auto12Specific factor theorywLooks at the income distribution effects of trade in the short run, wh
8、en some factor inputs are not mobile among sectorswIndicates that workers may be better or worse off, depending on preferenceswPredicts that owners of factors used in export industries gain from trade, while owners of factors used in import-competing industries will lose from tradeBringing theory closer to reality13Relative prices and the specific factor modelBringing theory closer to reality14
