The Ricardian model is a classical theory that says comparative advantage which comes as a result of differences in technologies across countries is what determines the pattern of trade. Hecksher-Ohlin’s model on the other hand says, trade comes as a result of differences in resource endowment in each country. The objective of this essay is therefore to compare and contrast the classical (Ricardian model) and Heckscher-Ohlin (HO) model of the commodity composition of trade and discuss the differences in assumptions, post trade production points, and the effects of trade on the distribution of income.
As said earlier, the determinant of the pattern of trade in the Ricardian world is comparative advantage. But before determining which country has a comparative advantage, the following assumptions must hold. The Ricardian model assumes that, there are only two goods and two countries. It also assumes that labour is the only factor of production with its marginal product being constant. These assumptions makes the production possibility frontier in the Ricardian model a straight line. It further assumes that the technology in the two countries are different.
With these assumptions, a country export a good it has comparative advantage in producing. A country is said to have a comparative in producing a good when it has lower …show more content…
Only that each country produce more of the good it uses intensively the abundant factor in that country: Nigeria still produce plantain and cloth but more of cloth because it is capital abundant and cloth industry uses capital intensively. Therefore there is no complete specialisation when trading. Figure 1 (a) shows the no trade production point and Figure 1 (b) shows the post trade production point. Nigeria will produce more of cloth because producers in Nigeria can produce more cloth at a lower price and export it for a higher price and produce less of
As said earlier, the determinant of the pattern of trade in the Ricardian world is comparative advantage. But before determining which country has a comparative advantage, the following assumptions must hold. The Ricardian model assumes that, there are only two goods and two countries. It also assumes that labour is the only factor of production with its marginal product being constant. These assumptions makes the production possibility frontier in the Ricardian model a straight line. It further assumes that the technology in the two countries are different.
With these assumptions, a country export a good it has comparative advantage in producing. A country is said to have a comparative in producing a good when it has lower …show more content…
Only that each country produce more of the good it uses intensively the abundant factor in that country: Nigeria still produce plantain and cloth but more of cloth because it is capital abundant and cloth industry uses capital intensively. Therefore there is no complete specialisation when trading. Figure 1 (a) shows the no trade production point and Figure 1 (b) shows the post trade production point. Nigeria will produce more of cloth because producers in Nigeria can produce more cloth at a lower price and export it for a higher price and produce less of