国际贸易英语第三章讲义

International Trade Theories

Chapter 3 Modern Trade Theories (2)

This chapter examines four more modern trade theories: the H-O theory of factor endowments, Leontief paradox, the product life-cycle theory and the “Gravity” of trade model.

The Heckscher-Ohlin Theory (of Factor Endowment)

(1) The meaning of the Heckscher-Ohlin theory

Although sometimes this theory is also referred to as the Heckscher-Ohlin model or the factor endowment model, more often that not it is called the Heckscher-Ohlin theory or simply the H-O theory. H-O theory is one of the most influential theories in modern international economics according to which international trade is largely driven by differences in countries’ resources (land, labor and capital). This theory is called this way, because it is developed by the two well-known Swedish economists, Eli Heckscher and his student, Bertil Ohlin (He received the Nobel prize in economics in 1977).

(2) Major points of view in the H-O theory

The following is a brief introduction to the chief points of view made by Heckscher and Ohlin.

● Different nati ons have different factor endowments and different factor endowments explain differences in factor costs.

● Differences in relative factor endowments and factor price constitute the most im portant explanation of the basis for (international) trade.

● A nation will export the commodity in the production of which a relative large amount of its relatively abundant and cheap resources is used. Conversely it will imports commodities in the production of which a relatively large amount of its relatively scarce and expensive resources is used.

● With trade the relative differences in resources prices between nations tend to be eliminated or to be equalized as result of continuous specialization in the production of the commodity of a nation’s comparative advantage.

● H-O theory also emphasizes the interplay between the proportions in which different factors of production are available in different countries and proportions in which they are used in producing different goods or commodities. That is why the Heckscher-Ohlin theory is sometimes also referred to as the factor-proportions theory.

(3) Comparison between the H-O theory and Ricardo’s theory of comparative advantage

● Main similarity Like Ric ardo’s theory H-O theory also argues that free trade is beneficial to trading nations.

● Chief dissimilarity The biggest difference between Ricardo’s trade theory and H-O theory is that, when explaining the basis for trade Ricardo places primary reliance on factor productivity while the H-O theory sheds more light on other important trade issues such as the influence of resource supplies or factor endowment supplies on international specialization and the influence of trade on the distribution of income. To put it in a simple way, unlike Ricardian trade theory which takes factor productivity difference as the main basis for trade, the H-O theory, in explaining the main reason for trade, delegates primary importance to the factor endowments nations enjoy.

(4) Illustrations

Some examples can be easily given to show how H-O theory works.

● The United States has long been a substantial exporter of agricultural goods, reflecting in part its unusual abundance of large tracts of arable land.

● South Korea and Chin a have excelled in the export of goods produced in labor-intensive manufacturing industries as textiles, clothing and footwear. This fact reflects South Korea’s and China’s relative abundanc e of low-cost labor. In contrast, the United States, which lacks abundant low-cost labor, has been a primary importer of these goods.

● Brazil exports a lot coffee because it has an abundance of the soil and favorable climate conditions required for coffee’s production.

(5) Comment on H-O theory

Undoubtedly the H-O theory has been one of the most influential and popular trade theories in international economics. Most economists prefer this theory to Ricardo’s because it makes fewer simplifying assumptions. However, the H-O theory is not perfect. It fails to:

● Explain why U.S. exports were less capital intensive (the U.S. is relatively ab undant in capital.) than U.S. imports. The U.S. exports goods that use skilled labor and innovative entrepreneurship while importing manufactures that use large amount of capital.

● Turn enough attention to the increasing importance of the roles played by science and technology in the international division of labor and international trade.

● Touch on the maximization of profit-seeking as one of the most fundamental reasons for capitalist countries to trade with other countries.

The Leontief Paradox

Leontief is an economist who won the Nobel prize in international economics in 1973. His full name is Wassily Leontief. His famous work on economics includes Domestic Production and Foreign Trade and The American Capital Position Reexamined.

As you may recall: One of the most important arguments of the H-O theory is that a nation will export the commodity in the production of which a relative large amount of its relatively abundant and cheap resources is used. So naturally one would expect that the United State would be an exporter of capital-intensive goods (It has a lot of capital). Surprisingly, this was not the case in the 25 years after the Second World War. In a famous study published in 1953, Wassily Leontief found that U.S. exports were less capital-intensive than U.S. imports. Economists call this result the Leontief paradox. “Paradox” in English language means “a statement that seems contradictory, unbelievable or absurd but that may actually be true in fact.”

The Product Lifecycle Theory

One of the influential theories attempting to explain Leontief paradox is the product life-cycle theory worked out by American economist Raymond Vernor and further developed by L.T. Wells.

The product life-cycle theory is primarily concerned with the role of technological innovation as key determinant of trade patterns in manufactured products.

According to the product life-cycle concept, many manufactured goods such as electronic products and office machinery undergo a trade cycle —the course of a product’s sales and profitability over its lifetime. During this course, the home country initially is an exporter then loses its competitive advantage vis-à-vis its trading partners of the commodity. The stages that many manufactured goods go through include the following 5 phases:

● Introduction stage: A manufactured good is introduced to home market as a result of a technological break-through in the production of it. The sales are low and so are profits.

● Growth stage: Domestic industry shows export growth and strength. Both sa les and profits are on the rise.

● Maturity stage: Supply and demand are well matched. Sales and profits continue to go up. The innovating firm establishes branches abroad.

● Decline stage: Foreign production begins. Sales and profits fall.

● Losing to f oreign competitors: Import competition starts: the innovative technology becomes fairly common-place and foreign producers begin to imitate the production process and gradually the domestic industry loses its export markets, becoming an importer of the

manufactured goods from an exporter due to big drop in sales and profits and losing its technological compositeness.

Xerox, the American copying-machine producer, underwent the above 5 phases which are illustrated graphically below:

Other New Trade Theories

Other New Trade Theories

New trade theories suggest that a country may predominate in the export of a good simply because it was lucky enough to have one or more firms among the first to produce those goods, enjoying big support from the government.

1. First-mover advantage

As one of today’s new trade theories, the theory of first-mover advantage argues that countries may export certain products very successfully simply because they have a firm or two that were an early entrant into an industry, and that these countries’governments heavily and actively support them due to such firms’ substantial economies of scale.

Based on this theory the new trade theorists argue that the U.S. leads in exports of commercial jet aircraft (Boeing) not because it is better endowed with the factors of production required to manufacture it, but because two of the first-movers in the industry, Boeing and McDonnel Douglas, were U.S. firms.

2. The Gravity model of trade

This model was worked out a few years ago by Andrew Rose, an economist at the University of California, Berkeley. In his research, published in 2000, he extended the “Gravity”model of trade. The idea, by analogy with Newton’s theory of the gravitational pull of planets, is that trade between two countries increases with their economic size, but decreases with the distance between them (and therefore transport costs). Mr Rose’s innovation was to add membership of a currency union as a possible influence on trade. Remarkably, he found that members of such unions trade three as much with one another as do countries outside unions.

New Words

1. to constitute 构成

2. abundant 丰富的，充裕的（n. abundance）

3. resources 资源（such as land, labor, capital, etc）

4. conversely 反之，相反

5. scarce 不足的，稀少的

6. to equalize 使均等，均等化

7. arable 适于耕作的，可耕的(suitable for plowing and hence for producing crops)

8. labor-intensive 劳动密集型的

9. contradictory 矛盾的

10. absurd 荒谬的

11. determinant 决定因素

12. initially 开始，最初

13. common-place 平凡的，平常的

14. graphically 用图表示，图示地

15. entrant 进入者

16. theorist 理论家

17. to imitate 模仿

18. vis-à-vis 与……相比

19. to predominate 居统治地位

20. innovative 创新的

21. interplay 相互影响，相互作用

Useful Phrases and Idiomatic Expressions

1. to receive (win) a prize in 获得……方面的奖，得奖

2. more often than not 多半地，往往

3. to tend to be eliminated 有被消灭的趋势

4. to shed more light on sth 将更多目光投注于，使……更加显示出来

5. to delegate primary importance to sth. 强调某事的第一重要性

6. to be endowed with 被赋予，使具有

7. to place reliance on sth. 依赖

8. in part 部分地(= partly or partially)

9. to be well matched 很相配

10. by analogy with 用……与相比较

Exercises

I. Answer the following questions:

1. What is the H-O theory? Its main arguments?

2. What are the similarity and dissimilarity between the H-O theory of factor endowment and

Ricardo’s theory of comparative advantage?

3. Give an example of the operation of the H-O theory.

4. What is Leontief paradox?

5. What is the product life-cycle theory primarily concerned with? What are the 5 stages many

manufactured goods undergo?

6. What is meant by the first-mover advantage?

7. Can you say something about the “Gravity” model of trade?

II. Translate the following into English:

1.产品周期论，又称产品生命周期论由美国经济学家绅农提出，并由威尔士等人加以发

展根据该理论新产品的生命周期主要经历四个阶段：（1）引进阶段，（2）增长阶段，（3）成熟阶段和（4）衰落阶段。在不同阶段出口商品的销售与利润是不大相同的。

2.按照赫-俄理论，相对要素禀赋和要素价格的区别是构成国际贸易基础的最重要的解

释。

3.在2000年伯克利加州大学的经济学家安德鲁·罗斯提出了贸易的“万有引力”模式。他用

牛顿的万有引力定律作类比，提出两国之间的贸易随它们的经济规模而增加，但却随它们之间的距离而减少。罗斯创立的理论认为，加入货币聪明可能是影响贸易的因素之一。

III. Paraphrase the following, esp. the underlined parts:

Ricardo places primary reliance on factor productivity while the H-O theory sheds more light on other important trade issues such as the influence of resources supplies or factor endowment supplies on international trade and the influence of trade on the distribution of income.

IV. Define the following terms:

1. factor endowment

2. arable land

3. manufactures

4. paradox

5. competitive advantage

6. economies of scale

Supplementary Reading for Chapter 3

International Trade Product Life-Cycle An approach to international trade that offers promise to business executives with formulating a long-rang product strategy is closely related to the product life-cycle concept in marketing. The trade cycle model suggests that many products to through a cycle during which high-income, mass-consumption countries are initially exporters, then loss their export markets, and finally become importers of the product. At the same time other advanced countries shift from the position of importers to exporters later in time, and still later, less developed countries shift from the position of being importers to being exporters of a product. These shifts correspond to the three stages in the product life-cycle: introduction, growth, maturity, and decline.

The pattern from the point of view of the high-income country is as follows: Phase 1, export strength is exhibited; phase 2, foreign production begins; phase 3, foreign production becomes competitive in export markets; and phase 4, import competition begins. The model suggests that new products are initially introduced in high-income markets. There are two main reasons for this. First, high-income markets offer the greatest potential demand for new products, both consumer and industrial. Second, it is useful to locate production facilities close to the product’s markets because of the need in the early stages of a product’s life to respond quickly and fully to the customer in adjusting and adapting the design and performance of the product. Thus it is typical for products to initially be produced in the market where they will be sold. The first manufacturers of the new product have a virtual monopoly in world markets. Foreigner who wants the new product must order it from companies in the high-income country. At this point, unsolicited orders begin to appear from overseas; high-income countries but also in foreign countries that are supplied by high-income-country exports.

In the relatively high-income foreign countries, entrepreneurs are quick to note the growing markets in the new product and are relatively swift in taking advantage of lower labor costs and factor costs in many foreign markets. Production is then initiated abroad in the new product. In the second stage of the cycle, foreign and high-income-country production supplies the same export markets. As foreign producers gain experience and expand, competition from the lowest-cost foreign production increasingly displaces the high-income-country export production source

for the product. At this point, high-income-country companies often decide to invest in foreign markets to retain market shares acquired via export sourcing.

As foreign manufactures expand production to supply home markets, their growing economies of scale make them a competitive source for third-country markets where they compete with high-income-country export marketers.

The final phase of this model occurs when the foreign manufacturer achieves mass production based on home and export markets and, due to lower factor costs, is able to produce at a lower cost than his or her American counterpart. The foreign manufacturer then begins to export to the high-income-country market. The cycle is now complete, and high-income-country companies that once had a virtual monopoly in the product find themselves facing foreign competition in their home market.

The cycle continues as the production capability in the product extends from the other advanced countries to less developed countries of the world that eventually displace the often advanced countries first at home, then in international trade, and finally in the other advanced countries’home market. Textiles are an example of a product that has gone through the complete cycle for the investing country (Britain), other industrialized countries, and finally for less developed countries.