Question

1)        What is the Heckscher-Ohlin theorem?

2)        Name three dynamic gains from trade.

3)        Explain the price-specie flow doctrine.

4)        Identify and describe the three “waves” of globalization discussed in the lecture.

Answer 1

1) Heckscher-Ohlin theorem states in the two-factor case: A capital-abundant nation will be exporting the capital-intensive good, and in the labor-abundant country will be exporting the labor-intensive good. Thus the exports of a capital-abundant country will be from capital-intensive industries while the labor abundant countries will export labour-intensive goods. The Heckscher-Ohlin theory predicts that a nation will export those products that make intensive use of locally abundant factors, while importing goods that make intensive use of factors that are locally scarce.

2) The three dynamics gains from trade are:

--specialization in production from economies of scale, economies of scale and relative availability of factor resources in types of output by businesses, and economies

-- increase in consumer surplus and producer surplus

-- increase in social welfare due to the maximization of national output due to optimum utilization of nation's factor resources or endowments.

3) According to the mechanism of price-specie flow under a gold standard, the nations with positive trade balances are efficiently importing gold (money) in exchange for their exports and those with negative trade balances are exporting gold in exchange for imports. An increase in gold in nations with positive trade balances causes inflation, while decrease in gold in nations with negative trade balances causes deflation

4) The three waves are:

First wave: During the period from 1860-1914 Europe and North America were highly affected by globalisation. The flow of goods accelerated; and the capital moved relatively freely between nations.

Second wave: Globalised organisations and regulations for supporting economic integration at the international level were created after World War II. Bretton Woods Agreement of 1944 was the basis of cooperation.

Third wave: The globalization is marked by the emergence and eventual dominance, within the most advanced industrial nations, of the information sector.