Professional Documents
Culture Documents
Resources, Comparative Advantage, and Income Distribution: Slides Prepared by Thomas Bishop
Resources, Comparative Advantage, and Income Distribution: Slides Prepared by Thomas Bishop
Resources, Comparative Advantage, and Income Distribution: Slides Prepared by Thomas Bishop
Resources,
Comparative
Advantage,
and Income
Distribution
Slides prepared by Thomas Bishop Copyright © 2009 Pearson Addison-Wesley. All rights reserved.
Preview
• Production possibilities
• Relationship among output prices, input
(factor) prices, and levels of inputs
• Relationship among output prices, input
prices, levels of inputs, and levels of output.
• Trade in the Heckscher-Ohlin model
• Factor price equalization
• Income distribution and income inequality
• Empirical evidence
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 4-2
Introduction
Land required for Total units Land required for Total units
each unit of food of food each unit of cloth of cloth
production production production production
Total amount of
aLFQF + aLCQC ≤ L labor resources
• Tests on US data
¨ Leontief found that U.S. exports were less capital-intensive
than U.S. imports, even though the U.S. is the most capital-
abundant country in the world: Leontief paradox.
• Tests on global data
¨ Bowen, Leamer, and Sveikauskas tested the Heckscher-
Ohlin model on data from 27 countries and confirmed the
Leontief paradox on an international level.
• Tests on manufacturing data between low/middle
income countries and high income countries.
¨ This data lends more support to the theory.
Source: John Romalis, “Factor Proportions and the Structure of Commodity Trade,” American Economic Review, March
2004.
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 4-63
Fig. 4-16 Changing Patterns of
Comparative Advantage