Consider the following data on U.S. trade: Product U.S. Exports ($ billions) U.S
ID: 1140277 • Letter: C
Question
Consider the following data on U.S. trade:
Product
U.S. Exports ($ billions)
U.S. Imports ($ billions)
Net Exports as a Percentage of Total Trade (%)
Wheat
5.38
0.72
+76
Aircraft
82.92
18.45
+64
Pharmaceuticals
44.08
60.16
-15
Toys
0.64
9.83
-88
Electronic Microcircuits
29.16
16.49
+28
Automobiles
27.98
82.06
-49
Shoes and footwear
0.95
18.25
-90
Cosmetics
6.40
4.79
+14
For which of these products do the exports and imports of the U.S. appear to be consistent with the predictions of the HO model? Which appear to be inconsistent with the predictions of the HO model?
PLEASE ANSWER THE QUESTIONS WITH YOUR OWN WORDS. THANK YOU!
Product
U.S. Exports ($ billions)
U.S. Imports ($ billions)
Net Exports as a Percentage of Total Trade (%)
Wheat
5.38
0.72
+76
Aircraft
82.92
18.45
+64
Pharmaceuticals
44.08
60.16
-15
Toys
0.64
9.83
-88
Electronic Microcircuits
29.16
16.49
+28
Automobiles
27.98
82.06
-49
Shoes and footwear
0.95
18.25
-90
Cosmetics
6.40
4.79
+14
Explanation / Answer
According to the predictions of Heckscher-Ohlin model, a particular country will export goods that use the factors in which the country is abundant. It will import goods that use the factors on which the country faces a scarcity. We can see that the exports of aircraft and electronic microunits exceed their imports which are consistent with the predictions of the model. This is because aircraft and electronic micro unit use capital as a major factor of production and the United States appears to have abundance of capital relative to labor. In a similar manner it's imports of shoes and footwear also follow the predictions of the model because these products are labour intensive while the United States is abundant in capital.
According to the predictions of Heckscher Ohlin model it should be exporting capital intensive products because of having an abundance of capital and should be importing labour intensive goods. Against the predictions made by the model, the exports of wheat exceed its imports while the imports of pharmaceuticals and automobiles exceed their exports. This is perplexing because the United States is exporting labour intensive goods and importing capital intensive products.
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