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 Rest of the World will export _____ and import _____.

Question

Quizplus · Accepted Answer

The Heckscher-Ohlin model predicts that countries will export goods that use their abundant factors intensively and import goods that use their scarce factors intensively. Given the information, the United States has a higher capital-labor ratio than the Rest of the World, making it relatively capital abundant. Automobiles have a higher capital-labor ratio than shoes, indicating they are capital-intensive. Therefore, the United States will export automobiles (capital-intensive good) and import shoes (labor-intensive good), implying the Rest of the World, being labor-abundant, will export shoes and import automobiles.

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