Consider the following data on some of Japan\'s exports and imports in 2012, mea

Question

Consider the following data on some of Japan's exports and imports in 2012, measured in billions of U.S. Dollars:

Product Japanese Exports 3.7 6.5 0.0 4.0 1.2 43.8 97.3 3.9 0.6 0.1 2.8 Japanese Imports Food (0) Metal ores (28) Crude petroleum (333) Pharmaceuticals (54) Soaps and cleaners (554) Iron and steel (67) Automobiles (7812) Aircraft (792) Clothing and accessories (84) Shoes and other footwear (85) Medical instruments (872) 64.2 39.7 153.1 24.3 0.8 10.1 10.9 7.3 33.9 5.9 6.0 Note: Commodity numbers from the Standard International Trade Classification are shown in parentheses.

Explanation / Answer

According to the predictions of Heckscher Ohlin theory, If a country is abundant in a particular resource then it will specialize in the production of goods and services that uses this abundant factor intensively and will export the same. Similarly goods that use the scarce resource are imported from abroad.

Japan is in industrialized society so we expect that it is abundant in capital while the labour is a scarce factor. It should then export the goods and services that uses capital intensively and imports the goods and services that uses labour intensively.

From the data we see that imports of goods and services that are consistent with the theory are food, clothing and other accessories, shoe and other footwear which all are labour intensive would and should be imported by a capital intensive country.

Similarly exports of goods and services that are consistent with the model include automobiles and iron and steel that use the capital more intensively in which the nation is abundant.

Now there are several goods and services that are not consistent with the model predictions. For example net exports of pharmaceutical you should be positive for a capital intensive country but they are negative implying that they are more imported than exported. The same is the case with metal ores, aircraft and medical instruments that are more imported than exported.  

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