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Essay / International trade relations - 1312
The Heckscher-Ohlin theory of comparative advantage was developed as an alternative to the Ricardian model and had an ideological mission: the elimination of the labor theory of value and the incorporation of the neoclassical price mechanism in international trade theory. The empirical validity of the Heckscher-Ohlin model argues that most empirical work aimed at proving the validity of the model by focusing on its power to predict trade patterns is irrelevant. Furthermore, the dynamic version of the model, which predicts long-term dynamic structural change, is based on simple empiricism. Second, it exposes the theoretical weaknesses of the model by questioning its treatment of capital and labor. Finally, it challenges the idea that the model outperforms the Ricardian model in its ability to predict trade trends between low-income and high-income countries, demonstrating that the Ricardian model would also anticipate trade trends similar. we find that the field of input-output economics consists of four broader areas. Input-output economics, based on the Heckscher-Ohlin theory and defined by the discoveries of Wassily Leontief, constitutes the best known part. The Ricardian model, which is the second most important model after that upon which input-output economics is based, will be described in some depth for comparison purposes and to provide alternative insight into the discipline of trade theory . , suggests that labor costs will be the determinant of trade: the country with the lowest labor costs in the production of a good will be the exporter of that product. This theory was tested in 1952 by MacDougall who used data on 25 products dating back to 1937 to compare labor productivity and exports of the United States and Great Britain. MacDougall thus checked whether their relative exports to third countries were linked to the productivity of their work. The results found by MacDougall were inconsistent with the simple Ricardian model. However, they are generally interpreted as supporting a more general "Ricardian" argument that differences in relative labor productivities are the determinant of comparative advantage. As long as these differences are due to technology, the model exists as an alternative to the model described previously. MacDougall found that manufacturing wage rates were about twice as high in the United States as in Britain. Therefore, the United States is expected to be the dominant exporter in markets where its labor productivity is more than twice that of Britain..