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Diptesh - Modern Trade Theory
Diptesh - Modern Trade Theory
Commerce
Indore (M. P.)
SUBJECT IB
PPT ON-
Submitted to:
by:
PROF. MANMINDAR sir
MISHRA
PGPSM+MBA
BATCH2 (B)
Submitted
DIPTESH
Bertil Ohlin
1899-1979
MODERN TRADE
THEORY
EXISTANCE:
RICARDOS Comparative Advantage
Haberlers Theories was not success.
REASONS:
1.
2.
3.
&
HECKSCHER-OHLIN THEORY
Assumptions:
1. It is 2x2x2 model. There are 2- country (A&B), 2
commodities (Commodity X and Y), and 2 factors of
production (Capital and Labor).
2. There is no changed in technological knowledge in
production.
3. Different factor IntensiveCommodity X is labor intensive and commodity Y is capital
intensive in both nations
Commodity
X requires relatively more labor to
produce than commodity Y.
(K/L) < (K/L)
X
Y
HECKSCHER-OHLIN THEORY
Assumptions:
4. Both commodities are produced under
constant returns to scale in both countries.
5. There is incomplete specialization
production in both countries.
in
HECKSCHER-OHLIN THEORY
Assumptions:
7. There is perfect competition
commodities and factor markets
countries.
in
in
both
both
HECKSCHER-OHLIN THEORY
Assumptions:
9. There are no transportation costs,
tariffs or other obstructions to the free
flow of international trade.
10. All resources are fully employed in
both countries.
11. International trade
countries is balanced.
between
two
HECKSCHER-OHLIN THEORY
12. There are quantitative difference in
the factors and govt. in different
reasons
but
qualitative
there
homogeneous.
PHYSICAL CRITERIYA Factor-Price RatioPc1
Pc2
<
PL 1
PL 2
HECKSCHER-OHLIN THEORY
Factor Intensity:
Commodity Y is capital intensive if the (K/L)
ratio used in the production Y is greater than
(K/L) used in the production of X.
Commodity X is labor intensive if the (L/K)
ratio used in the production X is smaller than
(L/K) used in the production of Y.
Factor Intensity:
S
G
oO
E
L
HECKSCHER-OHLIN THEORY
Factor Abundance:
Physical units: In terms of overall amount of capital and
labor available to each nation.
HECKSCHER-OHLIN THEORY
Heckscher-Ohlin Theorem:
A nation will export the commodity
whose production requires the intensive
use of the nations relatively abundant
and cheap factor and import the
commodity whose production requires
the intensive use of the nations
relatively scarce and expensive factor.
HECKSCHER-OHLIN THEORY
P
C
G
A
y
E
QI - ---------------
oO
D
X
CONCLUSION
Y = HG = JE
X= JF = HE
H-O suggests that each nation will
have a comparative advantage in the
goods that intensively use its
abundant factors. With free trade,
each nation will specialize in and
exports its comparative advantage
goods.