Hecksher-Ohlin Model Analysis

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The Ricardian model was named after a classical economist called David Ricardo. However, two Swedish economists, Eli Hecksher and Bertil Ohlin, conceived the Hecksher-Ohlin model (Schmitz, n.d.). In this essay, I am going to compare and contrast the classical (Ricardian model) and Hecksher-Ohlin (HO) theories of the commodity composition of trade. I would do this using the assumptions, post trade production points and the effects of trade on distribution of income. ASSUMPTIONS Differences in Assumptions In the Ricardian model, it is assumed countries specialize in the production of goods and services that they can do best. This means that countries trade with the resources they have a comparative advantage over. Whereas in the Hecksher-Ohlin model, it is assumed that countries specialize in the production of goods with factors that they have in abundance. This means that countries trade the resources they have in abundance for those they have in scarcity (Schmitz, n.d.). In the Ricardian model, trade occurs between countries as a result of different labor productivity that occurs because of difference in technology. While in the Hecksher-Ohlin model, trade occurs between countries because the available resources are different yet technologies are the same (Schmitz, n.d.). The Ricardian model assumes that there are two…show more content…
Specialization and trade as compared with autarky will increase the consumption of both goods nationally. Free trade increases the total world production efficiency because more of both goods are likely to be produced with the same number of workers. Free trade also improves total consumption efficiency because consumers have a more pleasing set of choices available to them. Real wages of individual workers are also shown to rise in both countries. Compared to autarky, each worker can consume more of both goods (Schmitz,

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