Assume a two-country two-good two-input model where the following relationships hold: (K/L) _U.S.> (K/L) _ROW
(K/L) _automobiles> (K/L) _shoes
Where (K/L) _U.S. is the capital-labor ratio in the United States, (K/L) _ROW is the capital-labor ratio in the Rest of the World, (K/L) _automobiles indicates the capital-labor ratio in the production of automobiles, and (K/L) _shoes indicates the capital-labor ratio in the production of shoes. Assume further that technology and tastes are the same in the United States and the Rest of the World. If trade opens up between the United States and the Rest of the World, according to the Heckscher-Ohlin model, the United States will export _____ and import _____.

Question

Quizplus · Accepted Answer

According to the Heckscher-Ohlin model, a country will export the good whose production requires intensive use of the country's abundant factor of production, and import the good whose production requires intensive use of the country's scarce factor of production. In this case, since the United States has a higher capital-labor ratio than the Rest of the World, it is abundant in capital and scarce in labor. Therefore, it will export the good that is capital-intensive, which is automobiles, and import the good that is labor-intensive, which is shoes.

Assume a Two-Country Two-Good Two-Input Model Where the Following Relationships