Application of Heckscher-Ohlin Theory - Paper Example

2021-07-28 20:33:50
7 pages
1812 words
Boston College
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Heckscher-Ohlin theory asserts that the factors of production that exist in abundant supply are exported, and in return, those in scarce supply are imported. The theory emphasizes on the fact that nations must exhibit differences in the abundance of production factors and for purposes of mutual benefit based on Ricardos comparative advantage theory trade with a motive of import and export is to be facilitated. It is therefore prudent to assert to Ohlins pattern where the intensive land product is bound to be exported as opposed to labor intensive products that era to be imported.

Factors of production


Globally, Vietnams economy is rated 47 based on the nominal gross domestic product and the 35th in consideration of the purchasing power parity. All the factors of production exist in the country but different proportions. The land is the largest and most lucrative factor of production as it is the yardstick of its economy supporting Industry, Agriculture, fishing, forestry, mining, and energy sectors among others. Notably, it is the second global exporter of coffee hence largely dependent on land. Agriculture is rated at 16.3%, industry 32.7% and services 40.9%. Labour is crucial and is an estimate at 55.93million. Exports are estimated to be 93.6% whereas the imports are estimated to be -91.3% It implies that land is the largest factor followed by labor and finally capital due to the low rate of machinery imported. Therefore, the intensive land products are highly exported, and the labor-intensive is imported, and this conforms to the Heckscher-Ohlin theorem.

New Zealand

Globally, New Zealands economy is ranked 53rd regarding nominal gross domestic product and the 68th based on the purchasing power parity index. It implies that despite the existence of the factors of production the dominant which is land is not the most lucrative as the service industry stems the economy after the experienced recession. Land as a factor of production supports diverse sectors such as agriculture at 3.91%, industry 26.3%, fishing, mining, and construction. The service industry which is the most dominant approximately occupies 69.8%.

Furthermore, exports are rated at 26.8% and imports rated at -26.1%. It, therefore implies that land-intensive products are almost equal to labor intensive. Even though the primary sectors are perceived to be critical for the nations economy since the recession the stability has not been regained. Labour force stands at 2.598 million which is a lesser number reflecting a bigger number of the unemployed. According to the New Zealand economic situation, the factors of production are varied, and land takes the largest portion, then capital and finally labor. It is therefore in accordance to Heckscher-Ohlin theorem as the industrial sector is largely land intensive hence the economic dominance but not sufficient. The shifts results to the inconsistency of labor and land intensive products that influence imports and exports.


It is one of the stable global economies and rated 9th based on the nominal gross domestic product and 8th regarding purchasing power parity. Due to its economic competence and the volume of exports and imports, it has better factors of production compared to Vietnam and New Zealand. In comparison to the world, its agriculture is rated at 10%, industry 39.8% and services 50.2%. Notably, the 25% of the global refined sugar and raw cane originates from Brazil; furthermore, 805 of the orange juice is also from Brazil. Besides that highlighted, major exports are coffee, soya beans, wheat, sugarcane, etc. Imports include the aircraft, motor vehicle, machines and equipment. The workforce in Brazil stands at 110.4 million, a figure explaining the economic competence. Importantly, statistics indicate the volume of export at 12.5% and that of imports at -12.1%. It, therefore, signifies the level of local consumption but in reality, the Heckscher-Ohlin theorem is considered since land-intensive products are widely consumed and exported whereas labor intensive is imported.

Part B

Section 1

The current trade policy asserted by the Trump administration is selfish and politically motivated. Even though it is aimed at protecting the infant industries in the United States, it has a short-term survival and in the long-run might be unsustainable as nations need one another to develop economically (Epstein, & Nelson, 2016). According to Trump, he is against the economic integration and therefore in support of trade protectionism policy that is motivated to increase trade tariffs and other non-tariff barriers to ensure that other global nations face a challenge in accessing their market with a motive of increasing local competition for their locally produced products. The notion held that imports take away jobs and lower the well-being of the people is untrue due to the following justifications

First, imports create employment to millions of the American as there a large population of local individuals who are employed in imports sectors and therefore depend on it for survival. Furthermore, it is the only means of accessing goods that are not produced locally, therefore, an avenue for product exchange with the aim of mutual benefit based on the theory of comparative advantage.

Secondly, imports are critical in the creation of competition with the local products hence increasing their competence in the global markets (King, & King, 2008). The Trumps position of protectionism is primarily concerned with protecting their infant industries from the competitive foreign market which might interfere with the survival of the emerging firms and might create the job outsourcing trend. In such an undertaking, his administration is forgetting the fact that, without competition, the American economic superiority and competence in the global market may not be viewed and in the long run is bound to result in slow economic growth.

Importantly, the position is to be reconsidered as other nations might opt to retaliate and when that happens, the US might suffer similar course as it is one of the nations that imports most of the products.

Notably, the move by the US president to block the imports from Canada is unlikely to bring changes to the economic variable such as employment positively.

First, the act of increasing trade tariffs to 20% restricts the number of the imported lumber and to a greater extent interferes with the employment sector negatively instead of boosting it. The Canadian government may be forced to subsidize the production cost to encourage its citizens to produce lumber, but on the side of US, only the government is to gain from such move due to high tariffs.

Secondly, the conception is meant to increase the prices of the imported products to increase the competitive advantage of those produced locally due to price variation. It means that the formerly existing firms are bound to increase their returns, but this might not have a bigger impact on the employment sector. It is, therefore, an economic superiority move that can only be solved through the acceptance of economic integration.

Section 2

The future of the corporate world is economic integration, without trade liberalization industries might collapse or fail to realize their competitive advantage element which is critical for its survival. For Stuart Shoun, there are specific advantages that make free trade a powerful economic policy compared to any other policy that might be placed by the concerned institutions.

First, it enhances innovative ideologies which are critical to an individual and the organization as well (Sachs et al., 1995). Logically, free trade knows no trade barrier, and therefore all firms will be competing on a level platform. It calls for individual workers and the institution as well to invest greatly in talent management, creativity, and innovation to create a competitive advantage that it can use in the market to capture consumers and survive. This element ensures increased competence and sharpened strategies hence the best for personal and organizational growth.

Secondly, it exposes individuals to a more dynamic and changing business climate. It is more beneficial to operate in a business environment that breeds challenges as that motivates individuals to work harder. Free trade allows industries to trade everywhere provided the government policy allows and in all the areas, the market forces are not static, and this sharpens the industrys marketing strategy with a sole motive of profit maximization regardless of the challenges.

Thirdly, free trade opens for opportunities for possible direct foreign investment. Notably, the barriers are what limits individuals from engaging in lucrative business deals. In a circumstance where the barriers are not existing, the interested parties from a foreign state may find it easy to access the industry and invest. Investments are one of the principle pillars that enable a business to grow easily and expand its territories.

The fourth sign is the issue of expertise acquisition. It is true that protectionism limits labor transfer as competent workers may not access industries of their choice. Free trade, therefore, enables employers to be exposed to a wide range of competent workforce capable of increasing the profitability and competence of the business in the global market.

Also, is the conception of knowledge transfer, as the individuals are free to imitate and learn the competitive advantage of the competing firms and use it to their advantage. As much as people consider it intellectual theft, it is important as one might capture the content and modify to create a different product or production process.

Part C

Section 1

Internal Economies of Scale and Global Economies

The concept of internal economies of scale refers to the firm-specific accruals linked to the changes in average costs of production for a company as it strives to manage the entire product output while the average production cost declines until efficiency is achieved. In other words, it is a measure of how business institutions are making their products at a rate that they can manage directly. Oligopoly, on the other hand, refers to the institutions that are few but independently can control the price, supply, and market for their products. The products offered by these firms tend to be similar but are differentiated based on the advertisements made, marketing and promotional strategies. An example is the telecommunication industry. Within the industry, for example, there are a few firms that are specialized in the production of the telecommunication products specifically the mobile phones performing a common function but branded differently to achieve the competitive advantage aspect in the market. Firms within this industry apply different strategies to capture the market and develop individual needs to buy and use the products.

Notably, these firms may create internal economies of scale in special ways. First, these products are made by use of machines facilitated by human resources. An aspect of internal economies can be through the application of large-scale production processes or capital machines. It is an aspect that breeds internal technical economies, furthermore, during the manufacturing processes, firms may purchase require components or ingredients in large-scale hence lowering the cost spent per unit of input acquired. Importantly, the reduction of administrative expenditure might result to decline in marginal productivity and as a consequence resulting to economies of scale.

Product differentiation

Product differentiation is a business conception whereby products that are similar are accorded different features through branding, and the addition of other features mak...

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