ch04trade model extensions and applications(国际经济学浙江林学院,岑丽娟)

1、International EconomicsBy Robert J. Carbaugh8th EditionChapter 4:Trade Model Extensions and ApplicationsFactor endowment theory (Heckscher-Ohlin)Comparative advantage is explained entirely by different national supply conditions, especially resource endowmentsNations export products that use inputs

2、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: assumptionsNations all have the same tastes and preferences (same indifference curves)They use factor inputs

3、which are of uniform qualityThey all use the same technologyWhy relative price differentials?3Comparative advantage according to factor endowment theoryFactor endowment modelAutarky equilibrium4Comparative advantage according to factor endowment theoryFactor endowment modelPost-trade equilibrium5Fac

4、tor endowment theory: implicationsFactor price equalizationThe shift within each nation towards use of cheaper factors, and away from expensive ones, leads to more equal factor pricesDistribution of incomeTrade changes domestic distribution of income as demand for different factors changesFactor end

5、owment model6Economies of scale & specializationEconomies of scale provide incentives for specialization, since per unit costs go down as production increases Trade provides a larger potential market for products, making higher production levels possibleBringing theory closer to reality7Economies of

6、 scale as basis for tradeEconomies of scale8Trade & specialization under decreasing costsEconomies of scale9Other extensions of the theoryOverlapping demandsIntra-industry tradeProduct cyclesDynamic comparative advantage - industrial policyBringing theory closer to reality10Free trade under increasi

7、ng costsTransportation costsNo transportation costs11Free trade under increasing costsTransportation costsTransportation costs of $2000 per auto12Specific factor theoryLooks at the income distribution effects of trade in the short run, when some factor inputs are not mobile among sectorsIndicates that workers may be better or worse off, depending on preferencesPredicts that owners of factors used in export industries gain from trade, while owners of factors used in import-competing industries will lose from