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Special Section : Theories of Trade - Witte Heckscher-Ohlin Theory of Trade.

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Presentation on theme: "Special Section : Theories of Trade - Witte Heckscher-Ohlin Theory of Trade."— Presentation transcript:

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?

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