Heckscher-Ohlin Model

The Heckscher-Ohlin model tries to explain how flows work

ofinternational tradeIt was formulated by the Swedish economistBertil Ohlinin
1933, modifying an initial theorem of his teacherEli Heckscher, formulated in
1919.
This model is based on the theory ofDavid Ricardoof thecomparative advantagey
it states that countries specialize in exporting goods whose
production is intensive in thefactorthat is abundant in the country, while
they tend to import those goods that intensively use the factor that is
relatively scarce in the country.

Development
Graphical representation of the Heckscher-Ohlin model

In the starting situation, there are two goods (G1 and G2, in this case) and two countries (A and B, in this case)
that present respective transformation curves as seen in the figure. The transformation curves
different shows the production of goods according to the endowment of factors existing in each country.
Assuming the non-existence of trade, these two countries reach their optimums at A. Ay
ABrespectively.

In this second graph, international exchange is included, which entails the existence of a unique
price line, given that the relationship will be the same for both countries. In this situation the points of
the equilibrium of each country will be PAy PB
The consequence is that the new equilibrium points, each country produces more goods of that factor.
what is more abundant in it.

In the theory of absolute advantage ofAdam Smithand in the advantage

Ricardo's comparison, the cause of international trade and of the
of work in different countries, caused by different elements such as the
employed technology, resources, or climate.
Heckscher and Ohlin, based on Ricardo's concept of comparative advantage,
they developed a general equilibrium mathematical model of international trade,
in which the following elements were highlighted:

Causes of the comparative advantage of a country

Variation of comparative advantage over time
Influence of trade on the size of the different industries of a
economy
Influence of trade on the returns of the factors of production.
Benefited by international trade within the economy of a
country.
In the Heckscher-Ohlin model, international trade results from the fact that
that different countries have different endowments of factors: thus there exist
countries with relative abundance of capital and others with relative abundance of
work. Normally, the wealthiest capital countries will export intensive goods.
in capital (relatively more capital is used than labor to produce them) and the
rich countries in labor factor will export labor-intensive goods (it is used
relatively more labor than capital to produce them.
In this way, if a country has a great supply of a resource 'A' in relation to
its offer of other resources is considered abundant in this resource 'A'.
Then that country will tend to produce relatively more of the goods that use
intensively the resource "A". In conclusion, countries tend to export the
goods that are intensive in the factors with which they are abundantly endowed.

Product Life Cycle Theory

The product life cycle theory is an economic theory developed
forRaymond Vernonin 1966 in response to the ruling of theHeckscher model
Ohlinto explain the observed facts in international trade. The theory
suggests that in the early stages of the product life cycle, production is
takes place in the same location where it was invented and is exported to countries
similar in development levels and demand preferences. In a second
stage copies of the product appear that are produced in other countries and are
they are introduced in the country of origin.1In
the third stage, called maturity, the
the market stops growing and only the companies that manage to produce with
lower costs. In the fourth stage, only countries with the lowest level of development
they produce and market the product in their own territory.

The new theory of trade

international
The new theory of trade began to emerge in the decade of the
seventy. According to her, many industries were experiencing
increasing returns to specialization, due to the presence of
substantial economies of scale. Furthermore, the theorists of the new
Commerce asserts that due to the presence of economies of scale
important, global demand will only support a few
firms in various industries. New trade theorists claim that
can only support a few companies. Thanks to the fact that they can
achieve economies of scale, the first to enter an industry
They can place a lock on the world market that discourages...
attempts of a subsequent penetration. Many global industries
they have a very limited number of companies. Such is the case of the
commercial aircraft industries, chemicals, construction equipment,
trucks, tires, electronic devices, and jet engines.
Through the judicious use of subsidies, a government can
increase the odds that national firms are the
first to act within emerging industries.

We have here a study of the trade of large corporations.

worldwide, which largely control trade, especially
from developing countries. To participate in one of these sectors, it does not
they definitely account for aspects such as the provision of factors or the
productivity, but there are barriers to entry that go
related to high investments in R&D, production plants,
industrial equipment and marketing, in addition to strong support
governmental that only some countries can grant. Once
within the sector, these large companies are mainly located in
the countries of origin of the capitals, such is the case of Airbus or
Goodyear, the first with European capital, is headquartered in France, but
it is supplied by subsidiaries located in neighboring countries, Spain,
England and Germany mainly; the latter has factories all over the
world, but mainly in the U.S., which is also the market with the
greater number of cars and has a region where several are located
one of the largest automotive manufacturers; Airbus only has a
a strong competitor which is Boeing, located in North America,
Goodyear has several competitors in Europe and Asia, however not
The arrival of a new participant in the business occurs frequently.

Apparently, this new theory of international trade is fulfilled in

those large companies, however, should not
forget that there are countries where small and medium enterprises
they are the engine of the exporting economy. Countries try to attract
some companies in the productive chain of these sectors little
competed, for this they create and offer productive clusters such as the
technology cluster located in El Salto, Jalisco or the aerospace one,
recent creation in Querétaro.

Theory of Economic Growth

The theory of economic growth studies what the determinants are of
long-term economic growth and the policies that must be promoted to
The history of economic growth is as long as the history of
economic thought. Even the first classics like Adam Smith, David
Ricardo or Thomas Malthus studied the topic of growth or introduced
fundamental concepts such as diminishing returns and their relation to
the accumulation of physical or human capital, the relationship between progress
technological and the specialization of work or the competitive approach as
dynamic equilibrium analysis instrument. Likewise, the classics of the 20th century.
how Ramsey, Young, Knight or Schumpeter contributed in a way
fundamental to our understanding of the determinants of the rate of
growth and technological progress. The approach adopted by Xavier Sala and
Martín in his book 'Notes on Economic Growth' relies on the
methodology and the concepts developed by neoclassical economists of the
second half of the 20th century. Starting from the work of Solow-Swan (1956), the
The 1950s and 1960s saw the neoclassical revolution arrive in theory.
of economic growth, and it was enjoying a renaissance that laid the
methodological bases used not only for growth theory but also
by all modern macroeconomists. The neoclassical analysis was completed with
the works of Cass (1965) and Koopmans (1965), which reintroduced the approach of
the intertemporal optimization developed by Ramsey (1928) to analyze the
consumer behavior in the neoclassical model. The assumption
neoclassical diminishing returns of each of the factors had, as
devastating consequence, the fact that long-term growth due to
the accumulation of capital was unsustainable. That is why researchers
Neoclassicals were forced to introduce exogenous technological progress,
the last engine of long-term growth. In the early 1970s, the theory of
economic growth died plunged in its own irrelevance. The
macroeconomists began to investigate the economic cycle and other phenomena
in the short term, encouraged by the methodological revolution of expectations
rational and the apparent failure of the previously dominant paradigm
Keynesian. The publication in 1986 of Paul Romer's doctoral thesis (written in
1983) and the subsequent blessing of Robert Lucas (1988) caused a rebirth of the
theory of growth as an active field of research. The new
researchers had the crucial objective of building models in the
that unlike neoclassical models, the long-term growth rate
positive out without the need to assume that any variable of the model was increasing
exogenously. Hence, these new theories were given the name.
name of endogenous growth theories. A first family of models
Romer (1986), Lucas (1988), Rebelo (1991), and Barro (1991) managed to generate
positive growth rates, based on eliminating diminishing returns to
scale through externalities or by introducing human capital. Macroeconomics
IV. Theory of Economic Growth. 4 A second group of contributions used
the environment of imperfect competition to build models in which the
investment in research and development (R&D) by companies generated progress
endogenous technological. Some examples of this work are the
we found in Romer (1987, 1990), Aghion and Howitt (1992, 1998) Grossman and
Helpman (1991). In these models, society rewards companies.
researchers with the enjoyment of monopolistic power if they manage to invent
a new product or if they manage to improve the quality of existing products. In
desirable the emergence of governments that guarantee property rights
physical and intellectual, that regulate the financial and foreign system and eliminate the
distortions and that maintain a legal framework that guarantees order. The government
therefore plays an important role in determining the growth rate
in the long term.

The theory of economic systems

An economic system refers to the way in which activity is organized.
economic system of a society, the production of goods and services and their distribution
among its members. Each economic system is characterized by its organization
legal that specifies the property regime and the contracting conditions
between individuals. It is the state that drafts and imposes that legal order
and reserves for itself certain areas and forms of action. The economic system
It serves, therefore, to determine which agents and under what conditions will be able to adopt.
economic decisions.

The classical economistKarl Marxsuggested that the economic system used by

each human society depends on the development of productive forces,
mainly technical knowledge, accumulated capital, and the population.
As long as the legal framework is appropriate to the level of the forces
productive forces, Marx said, can develop without tensions appearing.
graves; but there comes a moment when the productive forces have grown so much
that the social structure, instead of enhancing its development, appears as
a limitation, a corset that prevents its growth. It is then when the
legal superstructure and consequently the regime of property, is seen
forced to change in a more or less abrupt way

Applying that analysis, Marx divided the history of economic systems into
savagery or barbarism, slavery, feudalism, Asian mode of production and
capitalism. Historical materialism deduced that capitalism had arrived at
a critical situation; that the legal regime of private property over the
means of production was hindering the growth of the productive forces;
that as a consequence of this, economic crises were occurring each
more serious; that the system was doomed to collapse and to be
replaced by another in which the means of production would be in the hands of everyone
the society; and that the proletarians, the emerging social class, would be the ones in charge
of leading that change. I foresaw the advent in the more advanced countries of
two future systems, socialism, in which "everyone will receive according to their
work," and communism, in which "each will give according to their abilities and
will receive according to their needs.

This supposedly scientific analysis has been debunked by the course of events.
historical. A century and a half after it was written theManifesto
Communistwe can verify that their predictions have not come true. There is no
immutable historical laws that describe the evolution of systems
economic and human societies. There is also no one-to-one relationship
between the level of development of the productive forces and the economic system. Perhaps
a closer relationship between the economic system and the media can be seen
of communication. In this course we propose a classification of systems
económicos en la que ponemos de relieve la importancia del grado de desarrollo
of human knowledge and, therefore, of the existing technological means to
the transmission and accumulation of that knowledge.
In the twentieth century, opposing systems have coexisted in different parts of the
world that showed similar development of the productive forces. The state has
dominated the economy in developed European countries or in African countries or
underdeveloped Asians. Social transformations continue to be directed
by power groups, military, religious, bureaucrats. It has not been the ordering
the legal aspect of capitalism that has blocked economic development, prior to the
on the contrary, there have been some legal institutions allegedly derived from
the Marxist proposals that, limiting the freedom of individuals, have
slowed down the evolution of commerce and production, of the arts and sciences.

Certainly, the market alone has also shown its inability to

satisfactorily meet the basic needs of a large part of the
humanity. In fact, the countries that have reached a higher and more
harmonious development, reconciling it with individual freedoms, with the
stimulus to artistic creativity and scientific and technological research, the
they have succeeded thanks to an economic system that blends the free market with
the intervention of the state. And among those countries, the United States must be included.
and others who appear to the eyes of the world as champions of the market and of
liberalism.

In our days, the old debate continues, with some calling for 'more market' and others
asking for 'more state'. In a living human society, in continuous evolution, not
There is a theoretical way to resolve the issue. There can be no proof.
"scientific" what proportion between market and state is the most convenient, or the
fairer. Various people and groups, with diverse ideologies and interests, are
supporters of one proportion or another. They call themselves liberals, social democrats,
conservatives, progressives, laborers, communists, radicals, leftists or
rights, they are simply pressing in one direction or another, towards the
market or towards the state, with more or less strength.

The organization that human societies will adopt in the future is not
written in no holy book nor determined by any historical law: it will be the
consequence of the decisions being made in the present a great
number of individuals and social groups. Many of us trust that this system
the future satisfies our deepest longings for solidarity, cooperation and
equity, which allows for the disappearance of hunger, misery, and marginalization and that
all of this is compatible with respect for human rights and the promotion of
individual creativity.

Theory of Money and Credit

Theory of Money and Credit is an economics book from 1912 written
forLudwig von Misesoriginally published in German as Theory of
Money and the means of circulation. Mises analyzes the origin, nature, and value of the
money, and its effect on the determination of themonetary policyIt is one of the
fundamental works of the misesian branch of theAustrian Schoolof
economic thought.
In the book, Mises presents his theory of the origins of money through his
"regression theorem," a statement supported step by step based on
alogical argumentationno historical explanations. The origin of money is
acommodityoeconomic goodprior to its function as money according to the theory
de Mises. Mises explains why money is primarily a demanded good.
by right before becoming a store of value and a medium of exchange.
According to Mises, money has historically emerged after there has been a
Along with thePrinciples of Political EconomyofCarl MengeryCapital e
interestofEugen von Böhm-Bawerk, the book is among the works
fundamentals of the Austrian school.

Theories of International Trade

Economics has been trying for hundreds of years to explain the
competitiveness factors of countries and their companies. Proof of this
these are the theories that will be mentioned next. In them, there is no
it still mentions the term 'competitiveness', instead it talks
the "advantage" that some countries have over others in the
manufacturing of a good. For that reason, they have been included in this
section, as a historical background of competitiveness and the
integration of companies and countries.

Mercantilism
The first theory of international trade emerged in England at
mid-16th century. Known as mercantilism, its declaration of
principles consisted in that gold and silver were the pillars
fundamentals of national wealth and were essential for trade
vigorous. The fundamental principle stated that it was advisable for a
country maintain a trade surplus, through a higher level of
export more than import. By doing so, a country would accumulate gold and
silver would increase their national wealth and prestige. This doctrine
defended governmental intervention to achieve a surplus in the
trade balance. The error of mercantilism lies in believing that the
trade is a "zero-sum game" Currently, governments know
perfectly that few countries in the world can have greater
exports than imports, as will be seen in the theories
next, no country has the resources to be self-sufficient and
export the surplus of your production after having satisfied the
national consumption, however the study of the balance of payments continues
being an important reference for analyzing the behavior of a
economy. It is known that although one cannot always be in surplus,
a deficit may not be so bad, especially when it does not represent a
an important percentage of the gross domestic product and when it can be
offset by a capital income.

On the other hand, gold and silver have ceased to be the foundations of the
wealth of countries, now this is not something static that can be
to keep in a chest, but it has become something dynamic, such
como la tecnología o los servicios que son los que realmente crean la
wealth and prestige for countries.
Adam Smith in his classic work 'The Wealth of Nations' from 1776,
he argued that countries should specialize in the production of
goods for which they have an absolute advantage and, subsequently
exchange these products for items produced by other countries,
One should never produce at home what can be acquired at a lower cost.
cost, from other countries. This theory, despite being the first in
consider specialization as a strategic factor for countries,
I took this only at the national level, not at the regional level.
Currently, no country has a total monopoly on production.
some article, if not on the contrary, there is great competition among the
countries to win markets with mostly manufactured goods
nationals of each of them. An exporter competes, for example,
against exporters from other countries, as well as against producers
nationals of the destination countries. A transnational company perhaps
you will find it even more convenient to move your manufacturing operations to
another country where its target market is located. The theory of Adam Smith
simplify the issue of deciding 'what to produce' to an agreement between
gentlemen among all the nations of the world negotiating how to
they will distribute the acquisition of food, raw materials, and goods
manufactured, industrial or consumer. It also does not consider the
distribution issues, as it could be that one country is more
efficient in the production of certain products, but in transporting them to
another part of the world loses that advantage.

Theory of Comparative Advantage

In his book 'Principles of Political Economy' from 1817, David Ricardo
demonstrated that a country should specialize in those goods and services
that can produce more efficiently and acquire from other countries
those who produce less efficiently, even when,
occasionally, this represents acquiring foreign goods whose production
final can be more efficient. In this way, David Ricardo's theory
it emphasizes the productivity of countries.

Both the theory of absolute advantage and that of comparative advantage

they simplify the behavior of the economy a lot in their models
beyond the ordinary ceteris paribus, where one variable is studied and
the others are left static. Here, factors such as the are being omitted.
as mentioned in the previous section, for example: what happens
when more than one country is the most efficient in production of u
acquisition of a good in two different regions of the world. It is without
it is a great success to define the advantage of countries in the
productivity, which will be defined later in this thesis. However
It is worth noting that it is very true that a country can become more
productive in the acquisition of a certain article thanks to aspects such as the
technological development.