LITERATURE REVIEW

CHINA & ELEVEN TRADING PARTNERS

Pei, Jiansuo; Oosterhaven, Jan; Dietzenbacher, Erik

& Yang, Cuihong

This report is a contribution to the larger findings and empirical
evidences on the Hecksher-Ohlin theorem. The first anomaly to the
theorem was found by Leontief (Leontief, 1953) that subsequently
came to be known as the ‘Leontief’s Paradox’. It revealed that
USA despite being capital abundant, is exporting goods that are
comparatively more labor intensive. Further findings (University
of Groningen 2008) tell us that the Leontief’s Paradox holds true
for Sino-Indian as mentioned- ‘…the Leontief Paradox finds
support in China-India trade’. The authors site raw material
abundance in India as the reason for the paradox. Indian exports
are largely composed of goods that are simple conversion from the
raw materials but are considered as capital intensive exports. When
agriculture sector is not accounted for, the research finds that the
Hecksher-Ohlin theorem holds. China’s trade with 11 regions was
studied in the above mentioned paper, and it was found that the H-
O theorem holds true. The regions were chosen on the basis of
share in China’s total trade volume. Studying the nature of China’s
foreign trade with the world, it can be said “China resorts to
foreign trade in order to economize its capital and dispose of its
surplus labor”. Thus, the H-O theorem hold true. However, this
report attempts to analyze whether the same holds true in case of
trade between China and Germany.
NIGERIA&USA

UGBOR, I. KALU David-Wayas, Onyinye.

M.Nwanosike, Dominic U. University of Nigeria,
Nsukka Enugu, Nigeria
This paper empirically tests if Nigeria’s pattern of production and
trade with USA are consistent with the Heckscher-Ohlin
framework. The secondary sources of data to support this were
collected from the Central Bank of Nigeria and United Nation
Conference on Trade and Development (UNCTAD).Nigeria,
naturally endowed with abundant labour ,rich soils and favourable
climatic conditions survived on its labour intensive agricultural
production(which constituted more than 95% of its total export
share) till the late 1950’s.However when oil was discovered it
replaced cocoa, groundnut , palm products (major agricultural
labour intensive exports) as the largest foreign exchange earner(it
constituted 91.5% of total export share in 2008) even though it is
not a capital geared country. Nigeria which is relatively labour
intensive thus produced relatively capital-intensive product (crude
oil) for exports to USA (even though it is labour abundant) and
also imported capital intensive goods from USA (passenger
vehicles, oil field and drilling equipment required for oil
production) which is inconsistent with the H-O theorem. This is
because Nigerian experience has proven H-O theory as a dynamic
model against static model argued by others. Also, since both the
nations are geared towards capital intensive goods, factor price
equalisation does not take place. An implication of this framework
is that trade increases the real return to the factor that is relatively
abundant in each country. So, it was expected that in developing
countries like Nigeria that were well-endowed with unskilled
labour, wages of unskilled workers would increase relative to
skilled workers reducing income inequalities but it did not.
Because USA is capital abundantly endowed and Nigeria is capital
scarcely endowed, it results to trade imbalance between the two
and US gains while Nigeria loses. Therefore, the government
should use these findings to steer the economy towards a more
labour-intensive approach through incentivising foreign investors
to invest in agricultural industry and imposing tariffs or quotas on
imported agricultural commodities which could be produced
locally.
US &UK-Published by Wiley on behalf of The
London School of Economics and Political Science

By MICHAEL HODD

This article presents a test of the Heckscher-Ohlin (H-O) theory of

trade flows along the lines developed by Leontief. The H-O theory
boldly asserts that factor endowments determine trade flows. The
results obtained after this test, however, appear to be inconsistent
with the H-O theory.This article considers only those goods which
are produced in both countries and the goods which do not require
any specific factor other than capital and labour.The article has
studied trade between US and UK in 1947, because it reduces the
chance of taste differences and factor reversal.It calculates the
capital to labour endowment ratios of the UK, the US, and the
ROW, and it turns out that the US is capital-abundant relative to
the UK, and that the UK is capital-abundant relative to the
ROW.47 sectors were taken into consideration.The method used is
calculating capital inputs in a nation , taking inverse of the input-
output table and calculating the time period. Multiplying these
matrices, we get the total amount of capital required to produce
these goods. The average wage was calculated by dividing the total
salaries of employees by the labour force in the countries.The
results show that in her trade with the rest of the world, the UK
seems to use more of both factors in producing $1mn. of exports
than if it were to produce itself the imports for which they are
traded, since UK's imports have higher content of natural
resources. Also, the capital-labour ratios of US imports are all
much higher than the capital-labour endowment ratio of the US.
( This was also shown for US trade with the rest of the world by
Leontief).