Business Finance Homework Help

1-Omar, thanks for your contribution to this week’s Discussion; your assessments are correct. According to Krugman et al. (2015), the central message concerning trade patterns of the Heckscher-Ohlin theory is that countries tend to export goods whose production is intensive in factors with which they are relatively abundantly endowed. For example, comparing the United States and Mexico, one can observe a relative abundance of capital in the United States and a relative abundance of labor in Mexico. Thus, goods that intensively use capital in production should be cheaper to produce in the United States, and those that intensively use labor should be cheaper to produce in Mexico. Krugman et al. (2015 also argue that, with trade, the United States should export capital-intensive goods like computers, while Mexico should export labor-intensive goods like textiles. With integrated markets, international trade should lead to a convergence of goods prices. Thus, the prices of capital-intensive goods in the United States and labor-intensive goods in Mexico will rise.

Stolper-Samuelson theorem, as cited in Krugman et al. (2015), argues that owners of a country’s abundant factors (e.g., capital owners in the United States, labor in Mexico) will gain from trade, while owners of the country’s scarce factors (labor in the United States, capital in Mexico) will lose from trade. According to Krugman et al. (2015), the extension of this result is the Factor Price Equalization theorem, which states that trade in goods (and thus price equalization of goods) will lead to an equalization of factor prices. These income distribution effects are permanent, given that factor abundances do not quickly change within a country. Academically, the gains from trade could be redistributed such that everyone is better off; however, such a plan is challenging to implement in practice. What are some of the political implications of factor price regarding the Heckscher- Ohlin theory?

Reference

Krugman, P. R, Obstfeld, M., & Melitz, M. J. (2015). International economics: theory and policy. 10th edition. Boston: Pearson.

2-Hi Professor and classmates,

The Heckscher-Ohlin trade model refers to the comparison of two countries with equal tastes, can produce goods, and services utilizing equal technology. For example, the United States and Canada, each country endowed with 2 homogeneous factors such as labor and capital and produce 2 commodities. HO model = 2x2x2 model (2 countries, 2 commodities, 2 factors). Following the same example, the NAFTA agreement between the US, Canada, and Mexico falls in the same trend. The NAFTA agreement came in place to ban restrictions imports and exports between these countries. However, it has been controversial for many political leaders like President Trump, Canadian prime minister, and Mexican president. For example, these countries produce automobiles like Honda, Toyota, and GMs. These auto plants have the same technologies, and the manufactures pay the same fees to make their cars. What I just explained about the automobiles is also known as intra-industry trade; for instance, if we buy a Honda CR-V model in Canada, the US or Mexico, it will have the same characteristics in each country. The only difference will be the price a customer will pay at the dealership based on the country’s currency. The Heckscher-Ohlin trade model can be extended among countries partnering and cross selling and buying goods and services that they need. For example, the European Union works together with the World Trade Organization to help set global trade rules and remove obstacles to trade between WTO members.

Reference

Thompson, H. (1999). Definitions of factor abundance and the factor content of trade. Open Economies Review, 10(4), 385-393. Retrieved from https://www.proquest.com/scholarly-journals/defini…

3-Hello, Class!

The Heckscher-Ohlin model has for quite some time been the focal model of global exchange hypothesis, and it comprises of two nations, and two elements of creation. The model’s forecast with respect to exchange designs is that every nation will trade the decency that seriously utilizes the factor of creation it has in bounty, and will import the other great (Kapur, 2015). All the more accurately, the nation with higher relative extents of a specific info factor will have some expertise in creating the decency that seriously utilizes that factor, and import the other great. For instance, a nation with a high incompetent to gifted work proportion will spend significant time in and trade merchandise that all the more seriously utilize untalented work as a creation input. Thus, they will in general import the other great from the other nation, whose relative untalented to talented work proportion is actually the reverse. The Heckscher-Ohlin exchange model is revolved around the possibility that relative factor plenitude and force is the thing that drives exchange designs between nations.

Lamentably, however this model is straightforward and gives effectively discernible forecasts, the expectations are not fulfilled by the observational information. In 1953, Wassily Leontief played out the principal trial of the Heckscher-Ohlin hypothesis utilizing United States exchange information from 1947 (Reyes, 2016). At the point when he directed his observational trial of the model he accepted that in 1947 the United States was capital plentiful comparative with the remainder of the world. As per the Heckscher-Ohlin model, Leontief’s examination ought to have brought about the United States sending out capital-serious products and bringing in labor-escalated merchandise, notwithstanding, his outcomes indicated the specific inverse pattern. This exact counterexample to the Heckscher-Ohlin model has been named “Leontief’s conundrum.” This oddity has caused a huge development in global exchange hypothesis to build up an all-encompassing form of the Heckscher-Ohlin model that is predictable with observational information.

The Heckscher-Ohlin forecast can be examined however relapses relating the ability force of every industry to a lot of U.S. imports by industry. These relapses utilize definite product exchange information from 2005 and evaluations of factor power for every industry in the NAICS file from the 2002 Economic Census (Bond, Iwasa, Nishimura, Julien & Gomis-Porqueras, 2013). The model expect that there are no factor force inversions. Since factor shares are fixed for every industry, they can be positioned from least to most concentrated utilizing factor share information for only one nation.

Reference:

Bond, E. W., Iwasa, K., Nishimura, K., Julien, B., & Gomis-Porqueras, P. (2013). POVERTY TRAPS AND INFERIOR GOODS IN A DYNAMIC HECKSCHER-OHLIN MODEL. Macroeconomic Dynamics, 17(6), 1227-1251. doi:http://dx.doi.org/10.1017/S136510051200003X

Kapur, B. K. (2015). A symmetric heckscher-ohlin model of endogenous growth. Journal of Economics, 116(3), 183-209. doi:http://dx.doi.org/10.1007/s00712-014-0430-4

Reyes, F. A. (2016). EQUILIBRIUM AND ECONOMIC POLICY IN W. LEONTIEF’S THEORY. Cahiers d’Économie Politique, 71, 203-217. Retrieved from https://search.proquest.com/docview/2230620660?acc…