Special Section : Theories of Trade - Witte

1
Special Section Theories of Trade - Witte

• Heckscher-Ohlin Theory of Trade

2
Special Section Theories of Trade - Witte

• Two Goods Food and Manufactures
• Two Countries China and the US
• Two Factors Labor and Kapital
• US W 10, R 5
• China W 2, R 10
• Two MC (assume perfect competition)
• MC(Manufactures) 10R 10W
• MC(Food) 20R 5W

3
Special Section Theories of Trade - Witte

• Solve for Pre-Trade Prices
• Arbitrage
• Comparative Advantage

4
Special Section Theories of Trade - Witte

• Factor Price Equalization Theory
• Stolper-Samuelson Theory
• Post-Trade Prices P(manufactures) 144, P(food)
  200
• Factor Price Equalization Theory

5
Special Section Theories of Trade - Witte

• Hechscher-Ohlin says
• Data says

6
Special Section Theories of Trade - Witte

• Intra-Industry Trade

7
Special Section Theories of Trade - Witte

• Why IIT?

8
Special Section Theories of Trade - Witte

• Why IIT?