Trade Topic HO vs Feenstra Hanson

1. The difference between the world of Heckscher-Ohlin and the current world is that

• Comparative advantage of making a component, not the good lies in one country

• Comparative advantage of making a component involves specialized firms but still located in one country

• Comparative advantage of making a component involves specialized firms located in more than one country

• A. Comparative advantage of making a component involves only one firm but located in more than one country

According to traditional trade theory, if the US is skilled-labor abundant and China unskilled-labor abundant, trade between the two will

• Increase inequality in both the US and China

• Decrease inequality in the US, but increase inequality in China

• Increase inequality in the US, but decrease inequality in China

• Decrease inequality in both the US and China

According to the Feenstra-Hanson model, if the US is skilled-labor abundant and China unskilled-labor abundant, trade between the two will

• Increase inequality in both the US and China

• Decrease inequality in the US, but increase inequality in China

• Increase inequality in the US, but decrease inequality in China

• Decrease inequality in both the US and China

Suppose that the designing of Samsung cellphones (Task 3) and the making of chips and other components (Task 2) are done in S. Korea, and the assembly (Task 1) is done in China. The numbers on the Tasks represent a descending order of skill-intensity. If Task 2 is moved from S. Korea to China, then

• It will become the least skill-intensive task in China

• It will become the most skill-intensive task in China

• It will become the most skill-intensive task to leave S. Korea

• It will be both the least skill-intensive task to leave S. Korea and will become the least skill-intensive task in China

Suppose that the designing of HP laptops (Task 3) and the making of circuit boards (Task 2) are done in the US while the assembly (Task 1) is done in China. The numbers on the Tasks represent a descending order of skill-intensity. If Task 2 is moved from the US to China, then

• Skill intensity will decline in both the US and China

• Skill intensity will increase in both the US and China

• Skill intensity will rise in the US but decline in China

• Skill intensity will decline in the US but increase in China

Do foreign workers take away jobs of native born workers??

• Yes

• No

• It depends

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