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Chapter 4Chapter 4 Resources and Trade:Resources and Trade:

The Heckscher-Ohlin ModelThe Heckscher-Ohlin Model

（赫克歇尔（赫克歇尔 -- 俄林模型）俄林模型）

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Case study

The scarceThe scarce （稀缺）（稀缺） and abundantand abundant （充裕）（充裕）resources （资源） in China in China

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2000 年，全球石油剩余探明可采储量为 1421 亿吨，其中中东地区的沙特、伊拉克、科威特和伊朗四个国家拥有世界 63 ％的储量，是世界所有其它地区石油储量总和的近两倍。我国石油只有世界人均占有量的 11 ％。

进口石油产品

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我国人均占有森林面积相当于世界人均占有量的 21 ． 3 ％，人均森林蓄积量只有世界人均蓄积量的 12 ． 5 ％。加拿大 人均森林面积是中国的约六十倍。          

进口新闻纸

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２００５年１月６日零点２分，中国第１３亿个公民在北京妇产医院出生，这一天也成为“中国１３亿人口日” （世界人口为 65亿） 。

出口劳动密集型产品

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In the real world, while trade is partly explained by differences in labor productivity, it also reflects differences in countries’ resources.

Chapter 4 examines a model in which resource differences are the only source of trade and comparative advantage is influenced by the interaction between nations’ resources.

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It shows that comparative advantage is influen

ced by Relative factor abundance (refers to countries) and Relative factor intensity (refers to goods)

It is also referred to as the factor-proportions theory and the Heckscher-Ohlin theory (developed by two Swedish economists).

It is one of the most influential theories in international economics.

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Video clip: 中美贸易 _ 合作潮头翻浪花

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He was born into an upper-middle class family in a village in the South of Sweden in April, 1899. It was a large family with seven children.

Bertil Ohlin (1899-1979)

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Bertil Ohlin developed the factor endowment theory （生产要素禀赋学说） . He was not only a professor of economics at Stockholm, but also a major political figure in Sweden. He was the head of liberal party for almost a 1/4 of a century. He was Minister of Trade during World War II. In 1979 Ohlin was awarded a Nobel prize jointly with James Meade for his work in international trade theory.

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He Was a Swedish economist. He is probably best known for his book “Mercantilist.” （重商主义）He developed the essentials of the factor endowment theory of international trade in a short article in Swedish in 1919.

Eli Heckscher (1879 -1952)

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Chapter Organization

• A Model of a Two-Factor Economy

• Effects of International Trade Between Two-Factor Economies

• Empirical Evidence on the Heckscher-Ohlin Model

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A Model of a Two-Factor Economy

一、 Assumptions of the Model

1. An economy can produce two goods, cloth and food.

2. The production of these goods requires two inputs that are in limited supply: labor (L) and land (T).

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3. Production of food is land-intensive and production of cloth is labor-intensive .

4. Perfect competition prevails in all markets

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二、 Definition of input combinations （投入组合） and factor intensity （要素密集）

In this model, we first deal with two important conceptions:

Input combination. Factor intensity.

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1. Input combinations

The producer will face not fixed input requirements but trade-offs （交换） which shows alternative input combinations that can be used to produce one unit of product.

It can be showed by the curve II in the Figure 4-1.

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Input combinations that produce one calorie of food

Unit land input aTF ,in acres per calorie

Unit labor input aLF ,in hours per calorie

Figure 4-1: Input Possibilities in Food Production

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2. Factor Intensity

Input choice depends on the relative cost of land and labor, that is the ratio of two factor prices w/r.

The relationship between factor prices and the ratio of land to labor use in production of food and cloth is shown in Figure 4-2 as the curve FF and CC.

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CCFF

Wage-rental ratio, w/r

Land-laborratio, T/L

Figure 4-2: Factor Prices and Input Choices

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Food production is land-intensive, if the land-labor ratio T/L used in the production of food is greater than that used in the production of cloth at any given wage-rental ratio w/r :

TF/LF > TC/ LC

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Example:

If food production uses 80 workers and 200 acres, while cloth production uses 20 workers and 20 acres, then food production is land-intensive and cloth production is labor-intensive.

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In a model of a two-factor economy, factor prices do not only determine input combinations, it also connects with goods prices.

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三、 Factor Prices （要素价格） and Goods Prices

1. The cost of producing a good depends on factor prices.

Figure 4-3 illustrated a one-to-one relationship between the w/r and the PC/PF by the upward-sloping curve SS.

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The importance of a particular factor price to the cost of producing a good depends on how much of that factor the good’s production involves.

Question: please make two examples Intensively one; Not intensively one.

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SS

Relative price ofcloth, PC/PF

Wage-rentalratio, w/r

Figure 4-3: Factor Prices and Goods Prices

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2. From Goods Prices to Input Choices

We can make the Figure 4-4 by putting Figure 4-2 and Figure 4-3 together.

Given the relative price of cloth (PC/PF)1, the ratio of the wage rate to the rental rate on land must equal (w/r)1 . This wage-rental ratio then implies that the ratios of land to labor employed in the production of cloth and food must be (TC/LC)1 and (TF/LF)1

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FFCC

SS

Land-labor Ratio, T/L

Relativeprice ofcloth, PC/PF

Wage-rentalratio, w/r

(PC/PF)1 (TC/LC)2(TC/LC)1 (TF/LF)2(TF/LF)1

(w/r)2

(w/r)1

Increasing Increasing

Figure 4-4: From Goods Prices to Input Choices

(PC/PF)2

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If the relative price of cloth rises to the (PC/PF)2, the wage-rental ratio must rise to (w/r)2. This will cause the land-labor ratio used in the production of both goods to rise, (TC/LC)2 and (TF/LF)2.

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3. Stolper-Samuelson Effect （斯托尔博 -萨谬尔森定理） ---p 69:

If the relative price of a good (PC/PF) increases, the nominal and real return (w/r) to the factor used intensively in the production of that good increases, while the nominal and real return to the other factor decreases.

The reverse is also true

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In Figure 4-4 :

An increase in the price of cloth relative to that of food, PC/PF ,will:

1) Raise the income of workers relative to that of landowners, w/r.

2) Raise the ratio of land to labor, T/L, in both cloth and food production and thus raise the marginal product of labor in terms of both goods.

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3) Raise the purchasing power of workers and lower the purchasing power of landowners, by raising real wages and lowering real rents in terms of both goods.

Because land is now relatively cheaper, the ratios of land to labor employed in the production of cloth and food would therefore rise. It will increases the marginal product of labor, that is the higher wages.

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四、 Resources and Output

Now we can complete the description of a two-factor economy by describing the relationship between goods prices, factor supplies, and output.

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1. How are the allocation of resources and

economy’s output determined?

Please recall Figure 4-4: From Goods Prices (PC/PF ) to Input Choices(T/L)

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From Figure 4-5 we know:

Given the relative price of cloth (PC/PF ) and the supplies of land and labor (T/L), it is possible to determine how much of each resource the economy devotes to the production of each good and also to determine the output.

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LF

TF

LC

TC

Labor used in food production

Labor used in cloth production

OF

Increasing

Increasing

Increas ingIncr

eas i

ngLa

nd u

sed

in c

loth

pro

duct

ion

Land used in food production

1

F

C

OC

Figure 4-5: The Allocation of Resources

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Key point is that the economies must fully

employ its supplies of labor and land, which determines the allocation of resources between two industries and the economy’s output.

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Draw a straight line from OC and OF whose slope equals that land-labor ratio (T/L), such as the line OCC and OF F, the allocation of resources is identified by the intersection of two lines.

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2. Rybczynski Effect ( 罗勃津斯基定理 ) --p75

How do the outputs of the two goods change when the economy’s resources change ?

If a factor of production (T or L) increases, then the supply of the good that uses this factor intensively increases and the supply of the other good decreases for any given commodity prices.

The reverse is also true.

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C

L2F

L2C

T1F

T1C

F1

L1F

L1C

T2F

T2C

1

Figure 4-6: An Increase in the Supply of Land

Labor used in food production

Labor used in cloth production

Increasing

Increasing

Increas ingIncr

eas i

ngLa

nd u

sed

in c

loth

pro

duct

ion

Land used in food production

F2

O1F

O2F

2

OC

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Notice that the quantities of labor and land used in cloth production actually fall, it is now used in the food sector.

The output of food must have risen more the proportionately to the increase in land supply.

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3. Resources and Production Possibilities

Let’s take another way to understand this problem, An increase in the supply of land leads to a biased expansion （偏向性扩张） of production possibilities toward food production at unchanged relative prices.

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TT1 TT2

Output offood, QF

Output ofcloth, QC

Slope = -PC/PF

Slope = -PC/PF

2Q2

F

Q2C

1Q1

F

Q1C

Figure 4-7: Resources and Production Possibilities

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The biased effect of increases (decreases) in resources on production possibilities is the key to understanding how differences in resources give rise to international trade.

An economy will tend to be relatively effective at producing goods that are intensive in the factors with which the country is relatively well-endowed.

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We have learned a model of a two-factor economy, what happens When international trade occurs in two–economies .