Logic of the heckscher-ohlin model, International Economics

Q. Suppose Australia, a land (K)-abundant country and Sri-Lanka, a labor(L)- abundant country both produce labor and land intensive goods with the similar technology. Following the logic of the Heckscher-Ohlin model, what will be the incentive for migration once trade is taken between these two countries?

Answer: Once trade is set up there is no longer any incentive for economic-based immigration since the actual wages will be equalized in both. If a tariff is set up in Australia after that the price of the labour intensive good will be higher in Australia as will be the marginal product of labour and therefore the real wage of workers there. Therefore workers will immigrate from Sri-Lanka to Australia until the two domestic prices are equalized.

Posted Date: 6/25/2013 1:41:21 AM | Location : United States







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