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A. Suppose there exists four countries in the world: 1) Countries A and B are high income/developed countries abundant in capital and skilled labor and
A. Suppose there exists four countries in the world: 1) Countries A and B are high income/developed countries abundant in capital and skilled labor and 2) Countries C and D are low/middle income developing countries abundant in less-skilled labor. All four countries can produce semiconductors,which is skilled labor-intensive in production, and clothing, which is less-skilled labor intensive. 1. In this example, what pattern of trade would the Heckscher-Ohlin theory predict? That is, which countries would trade (export and import) which goods? 2. Based on data on global trade patterns presented in lectures, describe two characteristics of actual trade patterns that violate the HO theory predictions. You can use this example, countries and goods, to illustrate how actual trade violates the HO theory with regard to: a) Types of Countries that exchange_goods; b) Types of Goods Exchanged: B. What is the underlying cause (characteristic of production) of the (non-HO) trade patterns described in Part A.2? Describe in a sentence or two how the presence of this cause/characteristic can generate gains from trade. (You can use a numerical example, but it is not required)
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