Globalization
Trade is more important for low income countries who cannot produce much domestically.
Trade is less important for high income countries who are almost self sufficient (i.e. low trade)
High income → export mostly capital intensive goods (i.e. chemical, machinery, electronics)
Low income → export mostly labor intensive goods (i.e. agriculture, raw material, apparel)
High income countries mostly trade with other high income countries.
Hecksher-Ohlin Theorem:
A country will export those goods whose production requires the intensive use of the
factor of production that it has in abundance relative to the rest of the world.
Stolper-Samuelson Theorem:
Free trade benefits the factor of production that is relatively abundant (and harms the
locally scarce factor), regardless of industry in which it is employed.
Preferences for free trade divide along factors of production (or classes):
• Labor: oppose globalization
• Business/Capital Owners: support globalization
Sometimes companies export even though they don’t have a comparative advantage in a factor
of production → e.g. Nike exports in shoe industry (which requires lots of labor) even though it
is headquartered in USA → this is because Nike manufactures in labor intensive countries.
Predict Presidential Election
– Non-Tradable Services → dentist