Topic > International Trade Relations - 1312

The Heckscher-Ohlin theory of comparative advantage was produced as an alternative to the Ricardian model and had an ideological mission: the elimination of the labor theory of value and the incorporation of the neoclassical price mechanism in the theory of international trade. The Empirical Validity of the Heckscher-Ohlin Model argues that most empirical work aimed at demonstrating the model's validity by focusing on its power to predict business patterns is irrelevant. Furthermore, the dynamic version of the model, which predicts dynamic structural changes in the long run, is based on simple empiricism. Second, it highlights the model's theoretical weaknesses by questioning its treatment of capital and labor. Finally, it challenges the idea that the model surpasses the Ricardian model in its ability to predict trade patterns between low- and high-income countries, demonstrating that the Ricardian model would also predict similar trade patterns. The broader discipline of trade theory within which we find the field of input-output economics consists of four broader areas. Input-output economics, based on the Heckscher-Ohlin theory and defined by the discoveries of Wassily Leontief, is the best known part. The Ricardian model, which is the most important model after the one on which input-output economics is based, will be described in depth for the sake of comparison and to provide an alternative view of the discipline of trade theory. , suggests that labor costs will be the determinant of trade: the country with the lowest labor costs in producing a good will be the exporter of that good. This theory was tested in 1952 by MacDougall who used data on 25 products from 1937 to compare labor productivity and exports for the United States and Great Britain. In this way, MacDougall tested whether their relative exports to third countries were linked to labor productivity. The results found by MacDougall were not consistent with the simple Ricardian model. However, they are generally interpreted as supporting a more general "Ricardian" argument that differences in relative labor productivity are the determinant of comparative advantage. As long as these differences are due to technology, the model exists as an alternative to the model described above. MacDougall found that wage rates in manufacturing were about twice as high in the United States as in Britain. Therefore, the United States is expected to be the dominant exporter in markets where labor productivity is more than double that of Great Britain.