1 Chapter 4 Chapter 4 Resources and Trade: Resources and Trade: The Heckscher-Ohlin Model The Heckscher-Ohlin Model （赫克歇尔 - 俄林模型） （赫克歇尔 - 俄林模型）

2 Case study The scarce （稀缺） and abundant （充裕） in China The scarce （稀缺） and abundant （充裕） resources （资源） in China

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

4 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

5 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

6 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.

7 It shows that comparative advantage is influenced 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.

8 Video clip: 中美贸易 _ 合作潮头翻浪花

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

10 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.

11 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 Eli Heckscher ( )

12 Chapter Organization A Model of a Two-Factor Economy Effects of International Trade Between Two-Factor Economies Empirical Evidence on the Heckscher- Ohlin Model

13 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).

14 3.Production of food is land-intensive and production of cloth is labor-intensive. 4.Perfect competition prevails in all markets

15 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.

16 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.

17 // Input combinations that produce one calorie of food Unit land input a TF, in acres per calorie Unit labor input a LF, in hours per calorie Figure 4-1: Input Possibilities in Food Production

18 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.

19 CC FF Wage-rental ratio, w/r Land-labor ratio, T/L Figure 4-2: Factor Prices and Input Choices

20 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 : T F /L F > T C / L C

21 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.

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

23 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 P C /P F by the upward- sloping curve SS.

24 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.

25 SS Relative price of cloth, P C /P F Wage-rental ratio, w/r Figure 4-3: Factor Prices and Goods Prices

26 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 ( P C /P F ) 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 (T C /L C ) 1 and (T F /L F ) 1

27 FF CC SS Land- labor Ratio, T/L Relative price of cloth, P C /P F Wage-rental ratio, w/r (P C /P F ) 1 (T C /L C ) 2 (T C /L C ) 1 (T F /L F ) 2 (T F /L F ) 1 (w/r) 2 (w/r) 1 Increasing Figure 4-4: From Goods Prices to Input Choices (P C /P F ) 2

28 If the relative price of cloth rises to the (P C /P F ) 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, (T C /L C ) 2 and (T F /L F ) 2.

29 3.Stolper-Samuelson Effect （斯托尔博 - 萨谬尔森 定理） ---p 69: If the relative price of a good ( P C /P F ) 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

30 In Figure 4-4 : An increase in the price of cloth relative to that of food, P C /P F,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.

31 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.

32 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.

33 1.How are the allocation of resources and economy’s output determined? Please recall Figure 4-4: From Goods Prices (P C /P F ) to Input Choices(T/L)

34 From Figure 4-5 we know: Given the relative price of cloth (P C /P F ) 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.

35 LFLF TFTF LCLC TCTC Labor used in food production Labor used in cloth production OFOF Increasing Land used in cloth production Land used in food production 1 F C OCOC Figure 4-5: The Allocation of Resources

36 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.

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

38 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.

39 C L2FL2F L2CL2C T1FT1F T1CT1C F1F1 L1FL1F L1CL1C T2FT2F T2CT2C 1 Figure 4-6: An Increase in the Supply of Land Labor used in food production Labor used in cloth production Increasing Land used in cloth production Land used in food production F2F2 O1FO1F O2FO2F 2 OCOC

40 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.

41 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.

42 TT 1 TT 2 Output of food, Q F Output of cloth, Q C Slope = -P C /P F 2 Q2FQ2F Q2CQ2C 1 Q1FQ1F Q1CQ1C Figure 4-7: Resources and Production Possibilities

43 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.

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