International Trade - Theory and Policy, 2010a

Heckscher-Ohlin Model Assumptions: Production
The production functions in Table 5.1 "Production of Clothing" and Table 5.2 "Production of Steel" represent
industry production, not firm production. The industry consists of many small firms in light of the
assumption of perfect competition.
Table 5.1 Production of Clothing
United States
QC = f(LC, KC)
France
Q∗C=f(L∗C,K∗C)
where
QC = quantity of clothing produced in the United States, measured in racks
LC = amount of labor applied to clothing production in the United States, measured in labor hours
KC = amount of capital applied to clothing production in the United States, measured in capital hours
f( ) = the clothing production function, which transforms labor and capital inputs into clothing output
∗All starred variables are defined in the same way but refer to the production process in France.
Table 5.2 Production of Steel
United States
QS = g(LS, KS)
France
Q∗S=g(L∗S,K∗S)
where
QS = quantity of steel produced in the United States, measured in tons
LS = amount of labor applied to steel production in the United States, measured in labor hours
KS = amount of capital applied to steel production in the United States, measured in capital hours
g( ) = the steel production function, which transforms labor and capital inputs into steel output
∗All starred variables are defined in the same way but refer to the production process in France.
Production functions are assumed to be identical across countries within an industry. Thus both the United
States and France share the same production functionf( ) for clothing and g( ) for steel. This means that
the countries share the same technologies. Neither country has a technological advantage over the other.
This is different from the Ricardian model, which assumed that technologies were different across
countries.
A simple formulation of the production process is possible by defining the unit factor requirements.
Saylor URL: http://www.saylor.org/books
Saylor.org
188