Answer to Question #165568 in Economics for Liz

Question

When demand conditions are the same in all countries, the Rybczynski and Stolper-Samuelson theorems can be used to prove the Hecksher-Ohlin theorem. Explain.

Why must demand conditions be the same?

Answer 1

There are four main theorems in the H-O model: the Heckscher-Ohlin (H-O) theorem, the Stolper-Samuelson theorem, the Rybczynski theorem, and the factor-price equalization theorem. The Stolper-Samuelson and Rybczynski theorems describe relationships between variables in the model, while the H-O and factor-price equalization theorems present some of the key results of the model.

The H-O theorem predicts the pattern of trade between countries based on the characteristics of the countries. The H-O theorem says that a capital-abundant country will export the capital-intensive good, while the labor-abundant country will export the labor-intensive good.

The critical assumption of the Heckscher–Ohlin model is that the two countries are identical, except for the difference in resource endowments. This also implies that the aggregate preferences are the same.