Chat with AIExam 9: Empirical Tests of the Factor Endowments Approach
Since about 1970, in both developed and developing countries, the ratio of trade to GDP has __________; over the same time period, in the United States and the European Union, the ratio of imports from developing countries to total imports __________.
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VerifiedB
The "Leontief paradox" refers to the empirical finding obtained by Wassily Leontief that, even though the United States was generally thought to be a relatively __________ country, it was found to be __________.
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Why can it be suggested that the fact that the ratio of skilled labor/unskilled labor has risen in almost all U.S. industries in recent years (and not just in traded goods industries) lends support to the view that increased inequality in the United States is not primarily due to increased Heckscher-Ohlin-type trade? How might you counter this suggestion?
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Answered by Examlex AI CopilotThe suggestion that the rising ratio of skilled labor to unskilled labor in almost all U.S. industries, not just in traded goods industries, lends support to the view that increased inequality in the United States is not primarily due to increased Heckscher-Ohlin-type trade is based on the understanding of what the Heckscher-Ohlin (H-O) model predicts. The H-O model of international trade suggests that a country will export goods that use its abundant factors intensively and import goods that use its scarce factors intensively. According to this model, trade can affect the distribution of income within countries by altering the demand for different factors of production, such as skilled and unskilled labor.
If increased inequality were primarily due to H-O type trade, we would expect to see a rise in the demand for and wages of the factor of production that the U.S. is abundantly endowed with (presumably skilled labor) relative to the factor that it is less endowed with (unskilled labor), but primarily in industries that are engaged in international trade. This is because these industries would be expanding and hiring more of the abundant factor due to their comparative advantage in producing goods that use that factor intensively.
However, if the ratio of skilled to unskilled labor is rising across nearly all industries, including those that are not involved in international trade, this suggests that other factors beyond H-O type trade might be driving the increased demand for skilled labor. These factors could include technological change, such as automation and computerization, which tends to complement skilled labor and substitute for unskilled labor, leading to a greater demand for skilled workers across the board. It could also be due to changes in the organization of work, shifts in consumer preferences, or domestic policy decisions that affect education and training.
To counter this suggestion, one could argue that even though the ratio of skilled to unskilled labor is rising in non-traded goods industries, international trade could still be playing a significant role in driving inequality. For example:
1. Spillover Effects: The impact of trade on the demand for labor in traded goods industries could spill over into non-traded goods industries. For instance, as trade increases the demand for skilled labor in the traded sector, wages for skilled workers could rise across the board, including in non-traded sectors, due to a more competitive labor market.
2. Indirect Trade Effects: Non-traded goods industries could be indirectly affected by trade through input-output linkages. For example, non-traded goods industries might supply inputs to traded goods industries or use inputs produced by traded goods industries, and thus their labor demand patterns could be influenced by the state of international trade.
3. Globalization and Investment: Increased globalization, including but not limited to trade, can lead to an environment where even non-traded goods industries must compete with foreign firms in terms of technology and efficiency, which could increase the demand for skilled labor.
4. Policy Responses to Trade: Domestic policies that are implemented in response to trade pressures, such as education reforms or tax incentives for investment in technology, could disproportionately benefit skilled labor and affect all industries, not just those engaged in trade.
In summary, while the broad-based increase in the skilled-to-unskilled labor ratio across industries suggests that factors other than H-O type trade are at play, trade could still be a contributing factor to increased inequality through various direct and indirect channels.
The text notes that, if demand reversal were the cause of the Leontief paradox, then labor would be relatively cheap in the United States. Explain the reasoning behind this statement.
(29) The European Union has heavily protected its farm sector through import duties; in addition, the Union subsidizes its exports of agricultural products. If "cropland" is regarded as a factor of production and is included in the Leontief statistic (along with, say, labor), how would the presence of these agricultural policies affect the results of such tests? Explain.
(41) Suppose that, in a real-world situation, a labor-abundant country's tariffs and nontariff barriers are levied relatively more heavily on labor-intensive goods than on capital-intensive goods. In this situation, a Leontief two-factor test would, other things equal, be __________ the country's adherence to the Heckscher-Ohlin trade pattern, in comparison with a situation where trade barriers were absent.
(31) If, as is suggested by some recent research, a country's consumers have a preference forHome goods over foreign goods that is not accounted for in the analysis, then this__________ will lead to a prediction of trade volume that is __________ than theActual amount of trade volume of the country.
(40) If demand reversal is the explanation for the Leontief paradox, this would imply that the demand by the United States for labor-intensive goods is relatively __________ and therefore that U.S. wages would be relatively __________ in comparison to wages in U.S. trading partners.
(30) If the Heckscher-Ohlin theorem is valid in practice (and assuming that capital and laborAre treated as the only two factors in the real world), then the "Leontief statistic" for aLabor-abundant country would be __________.
(43) If relatively labor-abundant country A has a "Leontief statistic" greater than 1.0 and relatively capital-abundant country B has a "Leontief statistic" less than 1.0, this suggests that
(34) Which one of the following has NOT been offered as a reason for increased wageInequality in the United States in recent decades?
(31) If economists wish to determine relative factor abundance across countries, why don't they simply calculate w/r ratios across countries and then compare these ratios?
(31) In the production process of a final good industry, the direct factor requirements per unit of output will be __________ the total factor requirements per unit of output; if the industry is relatively capital-intensive when classified by direct requirements, it __________ be relatively capital-intensive when classified by total requirements.
(32) In the United States, in approximately the last 2-3 decades, the supply of highly-skilled (HS) labor relative to less-highly-skilled (LS) labor has been rising. At the same time,The ratio of wages of HS labor relative to LS labor has been __________, and, therefore,The demand for HS labor relative to LS labor must have been increasing __________ than The supply of HS labor relative to LS labor.
(33) If increased Heckscher-Ohlin-type trade were the major factor leading to increased income inequality in the United States, then one would expect that the relative prices of skilled labor-intensive goods to unskilled labor-intensive goods would have __________ and that nontraded goods industries would have __________ their use of unskilled labor relative to skilled labor.
(34) A criticism of the argument that trade has been an important cause of increased U.S. Wage inequality in recent decades is that, if trade were an important cause, the nontraded Goods industries would have responded to the __________ in the price of skilled labor Relative to unskilled labor by using skilled labor relative to unskilled labor.
(40) If the U.S. trade pattern is as indicated by the Leontief test, this would suggest that participation in trade rather than in autarky by the United States has __________ the real return to U.S. capital and __________ the real wage of U.S. labor.
(27) In roughly the last three decades, the traditional measures of income inequality (such as the Gini coefficient) have shown that the degree of inequality in the United States has __________. However, if it were the case over that time period that the prices of goods primarily consumed by high-income individuals have increased more rapidly than the prices of goods primarily consumed by low-income individuals, then "real income"
Inequality in the United States over that same time period would likely have been _________ than suggested by the traditional measures.
(35) If factor-intensity reversals were indeed prevalent in the real world, how might this fact be used to explain the Leontief paradox? If this explained the paradox, would it suggest that any given U.S. trading partner stood a better chance of conforming to Heckscher-Ohlin than did the United States (i.e., will a factor intensity reversal yield "incorrect" H-O results for both countries)? Why or why not?
(34) (a) Explain how the Heckscher-Ohlin theorem is obtained, using either the "physical" definition or the "price" (or "economic") definition of relative
factor abundance.
(b) Illustrate and explain the phenomenon of a "factor intensity reversal." If two countries are trading in a situation where such a reversal has occurred, can the Stolper-Samuelson theorem still be valid for both of the countries? Briefly explain.
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