Session 5
Who Gains and Who Loses
from Trade
Who Gains and Who Loses within
A Country
Without trade, a country is more likely to produce
both products so as to fulfill the domestic demand.
With trade, a country is more likely to produce the
products in which it has intensive resources to
produce it (Hecstecher – Ohlin Approach).
Export
Import
Short-run Effect of Opening Trade
Land-intensive Country
(The United State)
Rent
Wage
Rent
Wage
The Long-run Factor-price Response
Land-intensive Country
(The United State)
Rent
Wage
Short-run
Rent
Wage
Rent
Wage
Meanwhile
Rent
Wage
Rent
Wage
Long-run
Rent
Wage
Short-run
Effect
Land-intensive country
Labor-intensive country
Why not 100% shift (53 for land use & 100 for labor use) ?
The ratio is still the same.
International Factor Price Equalization
With trade, the cost of resources in each country
becomes more similar, which then induce similar price
among countries.
Example :
(Labor)
No trade
With trade
the labor-scarce the labor-abundant
country
country
High wage
Low wage
Import put
the wage down
Export pull
the wage up
What happen to the price
when China open the country ?
Airbus
Boeing
Comac
Factor Endowments
e.g., factory & machine
This table is consistent with the H-O theory.
What this graph really mean ?
How it relate to the H-O theory ?
The U.S. Pattern