Contrast The Classical (Ricardian Model And Heckscher-Ohlin Theory Of The Relative Structure Of Trade
Essay 2: Compare and contrast the classical (Ricardian model) and Heckscher-Ohlin (HO) theories of the commodity composition of trade. Discuss the differences in assumptions, post trade production points, and the effects of trade on the distribution of income.
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The Ricardian model explained international trade using differences in labor productivity. Ricardo explained the variances in relative imports and exports of different countries within similar industries. He based his model on the comparative costs of production, with a single factor of production used to explain the benefits of international trade. This however, neglected the variations in the factors of production of each country. The Heckscher-Ohlin expands on the Ricardian model to include: two factors of production, comparative advantage due to relative variations in more than one factor, and the production reliance of each country on the resources it has in abundance. In general, unlike the Ricardian model, the Heckscher-Ohlin theory focused on the efficiency of the production process as a whole based on the country’s factor endowment. As such, based on differences in assumptions on variables, comparative cost theory, theories of international trade, cost differences, factors of production and …show more content…
In Ricardo’s model, everyone within the country gains from trade whereas in the Heckscher-Ohlin theory, the abundant factor stands to gain more while the scarce factor loses. In an ideal society, under the later theory, the ones who gain from trade would support the ones losing from trade. That way, everyone gains. However, under the Ricardian model, trade cannot exist forever as eventually equilibrium distribution of labor will be achieved whereas in the Heckscher-Ohlin theory continues