The theory developed by Hecklers-Olin of comparative advantage was produced as an alternative to the Arcadian model. Hecklers-Olin and the Arcadian model both contained the same idea to eliminate the labor theory of value with the incorporation of the price mechanism into international trade theory. Although both Hecklers-Olin and the Arcadian model contained the same idea the theories are very much different. The Hecklers-Olin theory on international trade focuses on factors that conclude comparative advantage (Applecart, Field, & Cob, 2010).
With the Hecklers-Olin theory countries will specialize in goods that use the most abundant resources available. Hecklers-Olin theory considers different factors of production in assessing the effect of international trade on income distribution. Economist say that the Olin theory is comparatively modern than the other theory in relation to international trade (Applecart, Field, & Cob, 2010). Arcadian theory on international trade focuses on the existence of comparative advancer as an assumption (Siegel, 2003).The Arcadian Theory states if every country produces commodities more than another entry then there is a need to specialize in production on a certain product that yields the lowest cost advantage (Siegel, 2003). The country then can exchange the superior product for another that is not so superior for that country to produce. This being said the trade between each country should be beneficial for each country involved.
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There are three assumptions with in the Arcadian theory they include: only two countries in the world, only two commodities, and trade between the two nations are not restricted (Applecart, Field, & Cob, 2010).In relation to the effects on trade the Heckler Olin theory is a accurate statement. With a lack of trade it would turn out the rate of labor economically in the countries that have an abundance of labor. This would conclude that the distribution of income is more within the trading nations that have relatively a cheaper labor force (Applecart, Field, & Cob, 2010). Trades would also affect relative advantage. This WOUld help countries easily export goods that have lower relative prices (Applecart, Field, & Cob, 2010). At the end would affect the income distribution.
For this trade does affect the income distribution. Limonite questioned the factual idea of the endowment model that was developed by the Hecklers-Olin theory. The Limonite paradox found that factors of production needed to be much more narrowly defined when testing the factor endowment theory (Applecart, Field, & Cobber 2010). The Limonite paradox questioned whether the relative assortment of a country in labor or capital affects the factor endowment model (Applecart, Field, & Cob, 2010). Limonite concluded that the US was exporting labor-intensive goods while importing capital-intensive goods.Limonite conclusion was completely contrary to the results that are obtained from the factor endowment theory (Applecart, Field, & Cob, 2010). According to Staff Linden the two factors that influence international trade patterns are transportation costs and environmental regulations.
Transportation costs can prevent the complete international equalization of the prices for traded goods. Thus, the price in the importing nation would exceed the exporting nation by the amount of the transport costs (Applecart, Field, & Cob, 2010).The products cannot be traded internationally or will be exceptionally costly to ship. Transportation costs simply reduce the volume of trade below what it would be without costs (Applecart, Field, & Cob, 2010). For products involving natural resources, dispensation will be found near the resources or near the final markets. This will depend on whether the dispensation consists of weight-losing or weight- gaining in nature (Siegel, 2003). Specific tariff is an import duty that is assigns a fixed monetary value per unit of the dutiable item (Applecart, Field, & Cob, 2010).
For example a specific duty might be $50 per ton imported or 4 cents per pound. The total tax imposed on imports is leveled according to the number of units coming in to the importing country. One of the main advantages of the specific tariff is that it is easy to compute. A disadvantage to the specific tariff is that it protects value varies inversely with the price of the import (Applecart, Field, & Cob, 2010). Ad valor tariff is becoming a poplar tariff to use these days. The ad valor tariff helps domestic producers to over come the loss of productive value (Applecart, Field, &Cobber 2010). The ad valor tariff safeguards the protected value of 1 unit of the imported good (Applecart, Field, & Cob, 2010).
The down side to the ad valor tariff is that there are difficulties with this tariff. Inspectors have to make judgment calls on the monetary value of the imported good this can cause the good to be overvalue to counteract with the undervaluation or to increase the level of protection and the tariff revenue (Applecart, Field, & Cob, 2010). Compound tariffs are a combination of ad valor and specific tariffs.