Criticisms of the HO model
The HO model assumes that only two countries trade with each other which are unrealistic. International trade is where many countries across the world imports and exports goods to each other. In practice, labor and capital are mobile. Furthermore, different consumers have different levels of ability from the same goods. Moreover, technology is costly in most of the countries and they have different technical knowhow, depending on the structure of the population. Lastly, as per the HO model, the industrialized countries import installed labor from the least developed ones and export skilled labor to other countries. This is not necessarily the case because if the country send its skilled labor force to other countries …show more content…
They argued that the Japanese economy in 1870s was in line with the neoclassical trade model. Japan was considered as a competitive economy, Even Deardoff (1980) agreed with the law of comparative advantage and the Ricardian model.
Empirical Evidence Supporting the HO Model
The classical test of the HO model was done by Leontieff (1953). He studied the U.S economy in 1947 where he calculated the amount of labor and capital being used on each industry. He found that low quantity of goods were produced with high capital . Thus, U.S used more capital- intensive methods for production. He also concluded that U.S and other countries used same technologies. He also agreed with the HO model.
However, some researchers criticized the view of Leontieff. They argued that U.S despite being capital abundant seemed to be in contradiction with the Ho model. The following reasons to explain the paradox:
Technologies in U.S and other countries were …show more content…
More empirical evidence needs to be gathered on both models. Some of the assumptions of the HO model might be considered in the real world while the others need to be tested. The thesis test that “International microeconomics is primarily a theoretical enterprise results” is true because there is no proof of the assumptions held by the Ricardo and Hecksher Ohlin. There are also criticisms of the test proposed by MacDougall. United States and United Kingdom are not the only two countries in the world. Furthermore, not only quantity, quality also
The HO model assumes that only two countries trade with each other which are unrealistic. International trade is where many countries across the world imports and exports goods to each other. In practice, labor and capital are mobile. Furthermore, different consumers have different levels of ability from the same goods. Moreover, technology is costly in most of the countries and they have different technical knowhow, depending on the structure of the population. Lastly, as per the HO model, the industrialized countries import installed labor from the least developed ones and export skilled labor to other countries. This is not necessarily the case because if the country send its skilled labor force to other countries …show more content…
They argued that the Japanese economy in 1870s was in line with the neoclassical trade model. Japan was considered as a competitive economy, Even Deardoff (1980) agreed with the law of comparative advantage and the Ricardian model.
Empirical Evidence Supporting the HO Model
The classical test of the HO model was done by Leontieff (1953). He studied the U.S economy in 1947 where he calculated the amount of labor and capital being used on each industry. He found that low quantity of goods were produced with high capital . Thus, U.S used more capital- intensive methods for production. He also concluded that U.S and other countries used same technologies. He also agreed with the HO model.
However, some researchers criticized the view of Leontieff. They argued that U.S despite being capital abundant seemed to be in contradiction with the Ho model. The following reasons to explain the paradox:
Technologies in U.S and other countries were …show more content…
More empirical evidence needs to be gathered on both models. Some of the assumptions of the HO model might be considered in the real world while the others need to be tested. The thesis test that “International microeconomics is primarily a theoretical enterprise results” is true because there is no proof of the assumptions held by the Ricardo and Hecksher Ohlin. There are also criticisms of the test proposed by MacDougall. United States and United Kingdom are not the only two countries in the world. Furthermore, not only quantity, quality also