Criticism against hechscher-ohlin type trade theories, International Economics

Criticism against Hechscher-Ohlin type trade theories is explained below:

The foremost criticism leveled against Hechscher-Ohlin type trade theories are that they views comparative advantage in the essentially static sense; that is if Pakistan is better at producing cotton and Japan better is at producing, then this situation will always exist. Critics argued that the comparative advantage can and should be viewed in a dynamic (time-varying) sense, and that it was not wise at all to rule out the possibility of Pakistan developing comparative advantage in cars in future.

Of course,  the  policy  advice  of  such  dynamic  comparative advantage theorists  was  very different from the above 6. These people argued that the countries build comparative advantage in the capital-intensive goods by protecting their domestic industries against the cheap industry manufactured imports from abroad. The protection is operationalised through tariffs which mean tax on imports or the outright quota restrictions. The output from the local infant industries then is used to substitute the imports of the manufactures. Various LICs (such as Mexico, India) consistently followed this policy prescription in the mid-20th century, but with the mixed results.

While it is true that number of countries pursued, fully or partly, the policy prescription suggested by the dynamic comparative advantage theories, only some of them were genuinely successful in changing their comparative advantage: Korea developed its comparative advantage in the auto industry, Malaysia in shipbuilding and consumer electronics, Taiwan in microchips, Brazil in light aircraft. Of these, most of the countries (like the East Asian tigers) had the marked export orientation in their industrialization and trade policies. This is what keeps them apart from the failures, which had a much more import-substituting approach to the industrialization..

Posted Date: 7/19/2012 4:17:32 AM | Location : United States

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