Deck 9: Empirical Tests of the Factor Endowments Approach

Question 1

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.

A) falling; less rapidly
B) falling; more rapidly
C) rising; less rapidly
D) rising; more rapidly

Answer 1

rising; more rapidly

Question 2

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

A) neither country is conforming to the prediction of the Heckscher-Ohlin theorem.
B) both countries are conforming to the prediction of the Heckscher-Ohlin theorem.
C) country A is conforming to the prediction of the Heckscher-Ohlin theorem but country B is not.
D) country B is conforming to the prediction of the Heckscher-Ohlin theorem but country A is not.

Answer 2

B

Question 3

Explain the economic process by which it can be hypothesized that increased participation in international trade by the United States in the last several decades has led to increased income/wage inequality in the United States. Then indicate why some economists doubt that the increased trade has been such an important factor, and explain other influences that economists think might have been important. Finally, if you were to pass judgment on this
matter, what would be your view of the source(s) of the increased inequality and how would you defend your view?

Answer 3

not answered

Question 4

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.

A) biased toward confirming
B) biased against confirming
C) unbiased in its finding concerning
D) biased toward confirming, biased against confirming, or unbiased in its findingConcerning - cannot be determined without more information

Question 5

A 1974 empirical study (by Steven Rosefielde) found that the "Leontief statistic" for the Soviet Union in its trade with Western industrialized nations was 1.44, and its "Leontief Statistic" for its trade with developing countries was 0.43. If the Soviet Union was Trading in accordance with the Heckscher-Ohlin theorem, these results suggest that theSoviet Union was relatively __________ compared to its Western trading partners and __________ compared to developing countries.

A) capital abundant; was relatively labor abundant
B) capital abundant; also was relatively capital abundant
C) labor abundant; also was relatively labor abundant
D) labor abundant; was relatively capital abundant

Question 6

How can it be said that the factor-content approach "reveals" a country's factor abundance? What assumptions seem crucial for making this inference? Explain.

Question 7

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.

A) greater than; must also
B) greater than; may not necessarily
C) less than; must also
D) less than; may not necessarily

Question 8

(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.

Question 9

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.

Question 10

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.

A) rise; more
B) rise; less
C) fall; more
D) fall; less

Question 11

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.

A) risen; decreased
B) risen; increased
C) fallen; decreased
D) fallen; increased

Question 12

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?

Question 13

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 __________.

A) increased; has decreased
B) increased; also has increased
C) decreased; also has decreased
D) decreased; has increased

Question 14

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.

Question 15

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?

Question 16

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?

Question 17

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 __________.

A) capital-abundant; exporting relatively labor-intensive goods and importing
Relatively capital-intensive goods
B) labor-abundant; exporting relatively capital-intensive goods and importing
Relatively labor-intensive goods
C) skilled-labor-abundant; exporting relatively unskilled-labor-intensive goods
And importing relatively skilled-labor-intensive goods
D) capital-abundant; exporting relatively skilled-labor-intensive goods and
Importing relatively unskilled-labor-intensive goods

Question 18

If the capital/labor ratio in import-competing industries in country A is $8,000 per worker and the capital/labor ratio in A's export industries is $4,000 per worker, then country A's "Leontief statistic" is __________.

A) 0.50
B) 0.67
C) 1.00
D) 2.00

Question 19

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.

A) decreased; decreased to a lesser extent
B) decreased; decreased to an even greater extent
C) increased; increased to a lesser extent
D) increased; increased to an even greater extent

Question 20

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.

A) low; low
B) low; high
C) high; low
D) high; high

Question 21

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.

A) "foreign bias"; larger
B) "foreign bias"; smaller
C) "home bias"; larger
D) "home bias"; smaller

Question 22

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 __________.

A) greater than 1.0
B) equal to 1.0
C) less than 1.0 but greater than zero
D) less than zero

Question 23

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.

A) increased; also has increased
B) increased; has decreased
C) decreased; has increased
D) decreased; has decreased

Question 24

Which one of the following could NOT theoretically be offered to help in explaining the "Leontief paradox?"

A) a relatively strong U.S. demand for relatively labor-intensive goods
B) relatively high U.S. tariffs on relatively labor-intensive imports
C) U.S. importation of goods that are relatively natural resource-intensive in their
Production processes
D) a relatively strong U.S. demand for relatively capital-intensive goods and/or a
Relatively strong foreign demand for relatively labor-intensive goods

Question 25

Which one of the following has NOT been offered as a reason for increased wageInequality in the United States in recent decades?

A) the increased adoption by firms of skill-biased technological change
B) an increase in the strength of labor unions
C) a decline in the real minimum wage
D) increased imports of labor-intensive goods from developing countries