Heckscher's theorem - Olin, Theorem on the leveling of factor...

Heckscher-Olin theorem

The country has a comparative advantage in the commodity, which intensively uses the surplus factor of the country. For example, Russia (a labor-surplus country) will have a comparative advantage in the production of labor-intensive goods, which will export (in our conditional example - fabric). Similarly, England (a capital surplus country) will have a comparative advantage in the production of steel (a capital-intensive commodity), which will be exported abroad, exchanging (for the given example) the fabric.

Therefore, the Heckscher-Olin theorem is sometimes formulated as follows: in countries, there is a tendency to export goods for the production of which excess factors of production are used, and vice versa, to import goods for the production of which relatively scarce factors are needed.

Or quite briefly: countries export products using excess factors and import products using scarce factors for them.

Thus, the Heckscher-Olin theorem goes one step further than the classical theory of comparative advantages: it not only recognizes that trade is based on comparative advantages, but also brings out the reason for comparative advantages-the difference in the country's endowment with production factors.

The difference in relative prices for goods in different countries, and therefore international trade between them is explained by their different endowments with production factors.

A theorem on the leveling of factor prices

Free trade balances the price of the relevant factor of production (factor cost) in different countries, thus replacing the external factor mobility. This theorem is an outstanding result, since it claims that, even in the absence of the movement of factors between countries, free trade leads to an international equilibrium in which workers receive practically the same salary, and the owners of capital receive the same interest rate in different countries of the world.

Stolper-Samuelson theorem

Increase in the relative price of a product increases the real cost of a factor intensively used in the process of its production, and reduces the real value of another factor. For example, an increase in the relative price of a fabric (labor-intensive goods) raises real wages and lowers the real bank interest for capital.

Rybczynski's theorem

Given the production factors (conditions) and the factors used in full, the expansion of the volume of one of the factors increases the output of the product, which applies the "extended" factor intensively, and reduces the output of another product.

For example, for the example in question, expanding the volume of labor will increase the volume of output of fabric (labor-intensive goods) and reduce the volume of output of steel.

Let us consider in detail the theorems formulated above.

Rybczynski's theorem

We begin with Rybczynski's theorem, which is the basis of the Heckscher-Olin model. Suppose that 1 m2 of tissue requires 4 units. labor and 1 unit. capital, and 1 ton of steel requires for its production 2 units. labor and 3 units. capital (Table 9.10).

Table 9.10. Resource Costs

Manufactured products

Cost per unit of output

labor ( L )

capital ( K )

Cloth (y), m2

Steel (x), t

Thus, the fabric is more laborious in relation to steel, because

Suppose that the economic system under consideration is provided with 900 units. labor and 600 units. of capital. Using these data as a supply of labor and capital, we can construct a production capacity curve (Figure 9.8).

Country Productivity Curve

Fig. 9.8. Country Production Capability Curve

If the economic system had an unlimited supply of capital, it could produce steel and fabric within the limits determined by the labor limitation CD (2x + 4y ≤ 900), which, by the way, is similar to the production capability boundary in the Ricardian models discussed above, illustrating comparative advantages (alternative costs) of production.

Similarly, in the case of an unlimited supply of labor, the economic system under consideration could produce production within the limits determined by the capital constraint AB (3x + y ≤ 600). When the supply of labor and capital is limited, both constraints specify the area of ​​permissible solutions, due to the broken line of the CEB.

In Fig. 9.8. The line of capital restriction passes in relation to the axis of abscissas "steeper" than the limit of labor, which is explained by the capital intensity of steel. To understand this, let's imagine that the economic system is at the point of 100% (full) engagement of factors (point E), and we will give the economy the opportunity to increase the output of steel (move to point B). Capital in this case will remain fully engaged, while the number of unemployed will increase. This means that steel requires more capital per unit of labor input (per worker) than fabric, hence steel is more capital-intensive than fabric.

To illustrate Rybchinsky's theorem, suppose that the volume of labor increases from 900 to 1200 units. (Figure 9.9).

The model of Rybczynski's theorem

Fig. 9.9. The model of Rybczynski's theorem

In this case, the labor constraint (2x + 4y ≤ 1200) shifts above the CD line to the C'D 'level. The common boundary of production opportunities is the line C'E'B. The full employment point moves from E to E '. At the same time, the output of fabric (labor-intensive goods) grows from 150 to 240 units, while the output of steel (capital-intensive goods) falls from 150 to 120 units.

With the growth of the available volume of labor, the output of labor-intensive goods must expand to absorb the extended labor offer. But since labor is used in a certain combination with capital (whose offer remains unchanged), obviously the output of a capital-intensive commodity must be reduced (in order to "liberate" the necessary amount of capital).

The consequences of Rybczynski's theorem for international trade are as follows. Expansion of production, for example export, with the help of a relatively excessive factor leads to a drop in production in other industries for which this factor is not relatively excessive. In these industries, there is a growing need for imported goods. In some cases, such a fall could be devastating (ie, exceed positive results from expansion of production and export growth) and may even lead to deindustrialization.

With such a problem, for example, Holland encountered in the process of developing natural gas fields in the North Sea (later this problem was called "Dutch disease"). With the increase in natural gas production, Holland's industrial exports declined more and more. The reason for this de-industrialization is explained by Rybchinsky's theorem: the extractive sector draws resources from industry, causing a decline in production in the relevant sectors.

In order to neutralize this effect, a tax on the extracted natural resource can be established, and the revenues received are used to stimulate industrial production (direct subsidies, tax breaks, etc.).

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