International Trade

Hecksher-Ohlin Model - Autarky

Home Country

As H is relatively L-abundant, H's PPF [1] is relatively biased toward L-intensive X.

Before trade, H will consume what she produces. Therefore, the autarky equilibrium is where the indifference curve is the tangent [2] of PPF.

H produces and consumes OHXH of X and produces and consumes OHYH of Y. H has IH of utility.

Foreign Country

By the same logic, before trade, F produces and consumes at EF.
Remember

  • H and F has the same production technology.
  • H is relatively more L-abundant, while F is relatively more K-abundant.
  • H and F has the same preference (the same utility functions).


  • From these three facts, it can be conjectured that PX is relatively lower in H and PY is relatively lower in F.

    Combining the two countries' graphs will give


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    [Topic] Hecksher-Ohlin Model


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