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Heckscher-Ohlin theory

by | Nov 30, 2023 | questions

could you please explain why decreased barriers to trade meke closing more expensive in the developing country given in the following text? To explain the effect on relative wages more precisely, consider a simple modelwith two countries (developed and developing), two factors (skilled and unskilledlabor), and two goods (skill-intensive machinery and labor-intensive clothing). Thedeveloping country has a relatively large supply of unskilled labor, giving it a comparativeadvantage in clothing, while the developed country has a relatively largesupply of skilled labor, giving it a comparative advantage in machinery.Barriers to trade (transport costs and tariffs, for example) drive wedges betweenthe prices of goods in the two countries and may even result in no trade orautarky. In particular, the barriers keep the price of clothing lower in the developingcountry than in the developed country and have the opposite effect formachinery. A reduction in barriers, and the resulting expansion of trade, wouldthus raise the price of clothing and lower the price of machinery in the developingcountry.

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