Heckscher-Ohlin Theory (2)

Abstract

The basic economic model of the so-called Heckscher-Ohlin Theory is the two country two commodity two factor model where production functions are linear-homogeneous and the endowment of two factors of production is exogenously given for each country. Besides the factor price equalization theorem and Heckscher-ohlin theorem discussed in Chapter 10, we can have also two additional well-known theorems derived from this Heckscher-Ohlin model. The first one is the so-called Stolper-Samuelson Theorem (Stolper and Samuelson [1941]) which considers the effects of an import tariff on the factor prices. In other words, it concerns with the changes in factor prices caused by a change in the relative price of two commodities. The second one is called Rybczynski Theorem (Rybczynski [1955]) which deals with the changes in the scale of production of two industries caused by a change in the factor endowment in the case of a small country. This is the problem of the effects of the economic growth on the relative scale of the two domestic industries, when the relative price of two commodities are assumed to be constant.