Bertil Ohlin

Last updated

The Heckscher–Ohlin Theorem, which is concluded from the Heckscher–Ohlin model of international trade, states: trade between countries is in proportion to their relative amounts of capital and labor. In countries with an abundance of capital, wage rates tend to be high; therefore, labor-intensive products, e.g. textiles, simple electronics, etc., are more costly to produce internally. In contrast, capital-intensive products, e.g. automobiles, chemicals, etc., are less costly to produce internally. Countries with large amounts of capital will export capital-intensive products and import labor-intensive products with the proceeds. Countries with high amounts of labor will do the reverse.

The following conditions must be true:

The theory does not depend on total amounts of capital or labor, but on the amounts per worker. This allows small countries to trade with large countries by specializing in production of products that use the factors which are more available than its trading partner. The key assumption is that capital and labor are not available in the same proportions in the two countries. That leads to specialization, which in turn benefits the country's economic welfare. The greater the difference between the two countries, the greater the gain from specialization.

Wassily Leontief made a study of the theory that seemed to invalidate it. He noted that the United States had a lot of capital; therefore, it should export capital-intensive products and import labor-intensive products. Instead, he found that it exported products that used more labor than the products it imported. This finding is known as the Leontief paradox.

Awards and decorations

See also

Significant publications

Interregional and international trade, 1933 Ohlin - Interregional and international trade, 1933 - 5175280.tif
Interregional and international trade, 1933

Sources

Related Research Articles

<span class="mw-page-title-main">Stockholm School of Economics</span> University in Stockholm

The Stockholm School of Economics is a private business school located in city district Vasastaden in the central part of Stockholm, Sweden. SSE offers BSc, MSc and MBA programs, along with PhD- and Executive education programs.

In an economic model, agents have a comparative advantage over others in producing a particular good if they can produce that good at a lower relative opportunity cost or autarky price, i.e. at a lower relative marginal cost prior to trade. Comparative advantage describes the economic reality of the work gains from trade for individuals, firms, or nations, which arise from differences in their factor endowments or technological progress.

<span class="mw-page-title-main">Stockholm School (economics)</span> School of economic thought (1930s)

The Stockholm School is a school of economic thought. It refers to a loosely organized group of Swedish economists that worked together, in Stockholm, Sweden primarily in the 1930s.

In economics, internationalization or internationalisation is the process of increasing involvement of enterprises in international markets, although there is no agreed definition of internationalization. Internationalization is a crucial strategy not only for companies that seek horizontal integration globally but also for countries that addresses the sustainability of its development in different manufacturing as well as service sectors especially in higher education which is a very important context that needs internationalization to bridge the gap between different cultures and countries. There are several internationalization theories which try to explain why there are international activities.

Factor price equalization is an economic theory, by Paul A. Samuelson (1948), which states that the prices of identical factors of production, such as the wage rate or the rent of capital, will be equalized across countries as a result of international trade in commodities. The theorem assumes that there are two goods and two factors of production, for example capital and labour. Other key assumptions of the theorem are that each country faces the same commodity prices, because of free trade in commodities, uses the same technology for production, and produces both goods. Crucially these assumptions result in factor prices being equalized across countries without the need for factor mobility, such as migration of labor or capital flows.

The Stolper–Samuelson theorem is a basic theorem in Heckscher–Ohlin trade theory. It describes the relationship between relative prices of output and relative factor rewards—specifically, real wages and real returns to capital.

<span class="mw-page-title-main">Eli Heckscher</span> Swedish political economist and economic historian

Eli Filip Heckscher was a Swedish political economist and economic historian.

<span class="mw-page-title-main">Knut Wicksell</span> Swedish economist (1851–1926)

Johan Gustaf Knut Wicksell was a leading Swedish economist of the Stockholm school. His economic contributions would influence both the Keynesian and Austrian schools of economic thought. He was married to the noted feminist Anna Bugge.

The Rybczynski theorem was developed in 1955 by the Polish-born English economist Tadeusz Rybczynski (1923–1998). It states that at constant relative goods prices, a rise in the endowment of one factor will lead to a more than proportional expansion of the output in the sector which uses that factor intensively, and an absolute decline of the output of the other good.

<span class="mw-page-title-main">Heckscher–Ohlin model</span>

The Heckscher–Ohlin model is a general equilibrium mathematical model of international trade, developed by Eli Heckscher and Bertil Ohlin at the Stockholm School of Economics. It builds on David Ricardo's theory of comparative advantage by predicting patterns of commerce and production based on the factor endowments of a trading region. The model essentially says that countries export the products which use their relatively abundant and cheap factors of production, and import the products which use the countries' relatively scarce factors.

New trade theory (NTT) is a collection of economic models in international trade theory which focuses on the role of increasing returns to scale and network effects, which were originally developed in the late 1970s and early 1980s. The main motivation for the development of NTT was that, contrary to what traditional trade models would suggest, the majority of the world trade takes place between countries that are similar in terms of development, structure, and factor endowments.

Leontief's paradox in economics is that a country with a higher capital per worker has a lower capital/labor ratio in exports than in imports.

<span class="mw-page-title-main">Heckscher–Ohlin theorem</span> Macroeconomic trade theorem

The Heckscher–Ohlin theorem is one of the four critical theorems of the Heckscher–Ohlin model, developed by Swedish economist Eli Heckscher and Bertil Ohlin. In the two-factor case, it states: "A capital-abundant country will export the capital-intensive good, while the labor-abundant country will export the labor-intensive good."

The Linder hypothesis is an economics conjecture about international trade patterns: The more similar the demand structures of countries, the more they will trade with one another. Further, international trade will still occur between two countries having identical preferences and factor endowments.

Intra-industry trade refers to the exchange of similar products belonging to the same industry. The term is usually applied to international trade, where the same types of goods or services are both imported and exported.

The gravity model of international trade in international economics is a model that, in its traditional form, predicts bilateral trade flows based on the economic sizes and distance between two units. Research shows that there is "overwhelming evidence that trade tends to fall with distance."

<span class="mw-page-title-main">Student Association at the Stockholm School of Economics</span>

The Student Association at Stockholm School of Economics organizes all students enrolled at the Stockholm School of Economics (SSE). SSE is a leading European academic institution for education and research in the fields of economics, finance, corporate law, business, managerial sciences and marketing. It is situated in Stockholm, capital of Sweden. SASSE is affiliated with the Stockholm Federation of Student Unions.

In economics, the Metzler paradox is the theoretical possibility that the imposition of a tariff on imports may reduce the relative internal price of that good. It was proposed by Lloyd Metzler in 1949 upon examination of tariffs within the Heckscher–Ohlin model. The paradox has roughly the same status as immiserizing growth and a transfer that makes the recipient worse off.

International trade theory is a sub-field of economics which analyzes the patterns of international trade, its origins, and its welfare implications. International trade policy has been highly controversial since the 18th century. International trade theory and economics itself have developed as means to evaluate the effects of trade policies.

References

  1. "Berth Ohlin's Contributions to Economic Theory" (PDF).
  2. Findlay, Ronald; Jonung, Lars; Lundahl, Mats (2002). Bertil Ohlin: A Centennial Celebration, 1899–1999. MIT Press. ISBN   978-0262062282.
  3. Toporowski, J. (2013). Michał Kalecki: An Intellectual Biography: Volume I Rendezvous in Cambridge 1899–1939. Springer. ISBN   978-1137315397.
  4. Sköldenberg, Bengt, ed. (1969). Sveriges statskalender. 1969 (PDF) (in Swedish). Stockholm: Fritzes offentliga publikationer. p. 152. SELIBR   3682754.

Further reading

Bertil Ohlin
BertilOhlin.jpg
Bertil Ohlin
Minister of Commerce and Industry
In office
1944–1945
Party political offices
Preceded by Chairman of the People's Party
1944–1967
Succeeded by
Political offices
Preceded by Minister of Commerce and Industry
1944–1945
Succeeded by
Awards
Preceded by Laureate of the Nobel Memorial Prize in Economics
1977
Served alongside: James E. Meade
Succeeded by