Overview of the differences between the Ricardian model, the specific factor model and the Heckscher-Ohlin model in analyzing and applying factor income distribution

The analysis is as follows:

Factor income distribution

Income distribution means the distribution of the results of economic activities among various economic entities within a certain period of time. Economic entities mainly Contains different production factors, so when multiple factors cooperate to produce.

The benefits brought by output must be allocated to different production factors. When analyzing factor income distribution in international trade, workers, capital owners and landowners are often the most important stakeholders. The income distribution in this article is also analyzed around these three production factors.

In order to simplify the description and classification during analysis, when a country requires a variety of different production factors for the production of goods, they will be divided into "specific factors" and "flow factors". Specific factors can only be used to produce one good, while mobile factors can be used to produce multiple goods.

Assume that a country can produce two commodities - cotton cloth and grain. The production of cotton cloth requires the input of capital (K) and labor (L), while the production of grain requires the input of land (T) and labor (L). At this time, labor is a mobile factor, while land and capital are specific factors. However, the concepts of "specific factors" and "mobile factors" are only used when producing multiple factors. There is no need to discuss this issue for the market of single factor production.

For different factors, the forms of income are also different. For example, the income from the production factor "land" is "rent", the income from "capital" is "interest" and the income from "labor" is "wage".

In real life, most transactions are produced by "currency" as a medium. Therefore, in reality, different forms of factor income are also reflected in the measurement method of "currency". It also facilitates our subsequent discussions.

Ricardian model

The Ricardian model is applied to the market for the production of a single factor, so there is no problem of "income distribution" because all income will be attributed to one Production factors, however, the impact of international trade on single factor income is also worthy of analysis and research.

Assume that a country (home country) only uses labor as a production factor for production, and its output includes two commodities: wine (w) and cheese (c). Therefore, the production inputs for wine and cheese must start from are allocated among the country's total supply of labor (L). For the production of different goods, the productivity of labor is also different.

Factor income in the Ricardian model.

As mentioned earlier, for a market with a single factor of production, all income will be attributed to one factor of production, so the market price determined by the supply and demand relationship in this market is the production factor income. Since the country decides to use this factor of production for the production of two goods, we also need to consider how many resources are devoted to the production of wine and cheese respectively.

In a competitive economy, supply depends on the efforts of producers to maximize profits. Therefore, supply is determined by the flow of labor, and the flow of labor depends on two parts. The relative wage rate is the relative price of two commodities.

Suppose Pc and Pw are the prices of cheese and wine respectively. Because of the inputs required to produce 1 unit of cheese, the wage rate per hour for cheese production is Pc/. Similarly, the wage rate for wine production is Pw/.

Therefore, when the relative price of cheese in the country is higher than the opportunity cost, the country specializes in the production of cheese; and when the relative price of cheese is lower than the opportunity cost, the country specializes in the production of wine.

If there is no international trade at this time, the relative price of the product is equal to the relative unit labor input, that is, the country will produce cheese and wine at the same time, so factor income depends on the market prices of these two commodities.

Factor income in the Ricardian model under international trade.

Assume that a foreign country also produces cheese and wine. The labor input per unit product of cheese and wine is and respectively. Assume that the relative labor productivity of cheese in the home country is higher than the relative labor productivity of wine.

Therefore, the country has a comparative advantage in producing cheese. If there is no international trade, the relative price of cheese in each country is determined by their relative labor input per unit product.

Not only that, international trade will also expand consumption possibilities. As relative prices tend to converge, countries only specialize in the production of products with relatively low labor input per unit product. Therefore, domestic consumers can For consumption under T*F*, foreign consumers can consume under T*F*, so more transactions are generated and the total income obtained by labor owners (workers) increases.

In the previous article, we mentioned the two concepts of "specific factors" and "mobile factors". If the country only produces two commodities, food and cotton cloth, then the production of cotton cloth requires the input of capital (K) and labor ( L), the production of food requires the input of land (T) and labor (L). At this time, labor is a mobile factor, and land and capital are specific factors.

Thus, to analyze the production possibilities of this country, it is only necessary to analyze how the output mix of goods changes when the specific factor "labor" is transferred between sectors. Feature-specific models take advantage of this.

If labor resources are transferred from the food sector to the cotton cloth sector at this time, the new input will increase the output of cotton cloth. The increase in output is the marginal product of labor in the cotton cloth sector MPLCc, and the cotton cloth must be If the output increases by 1 unit, 1/MPLc more labor must be invested. At the same time, the output of the food sector will decrease by the marginal product MPLF of labor in the food sector.

Factor income in a specific factor model.

Since the labor market is a derivative market of the commodity market, enterprises (capital owners) will determine the demand for labor based on changes in the price of cotton cloth or grain. Assume that all output value belongs to labor, that is, the wage rate of labor is the product of output and output value.

If the prices of two commodities change in the same proportion, for example, they rise by 10% at the same time, then both demand curves will rise by 10%, and the wage rate will also rise by 10%. At this time, because the wage rate and Product prices rise by 10%, and the real wage rate does not change, so the real income of labor owners will not increase.

Similarly, since the amount of labor employed in each sector remains unchanged and the real wage rate remains unchanged, the real incomes of capital owners and landowners also remain unchanged. Therefore, there is no change in the real income of any factor of production.

Heckscher-Ohlin model.

The Heckscher-Ohlin model is a theory that uses resource differences between countries to explain the causes of international trade. The basic assumption of this model is that all factors of production can be in sectors in the long run. flow between.

Among all the Heckscher-Ohlin models, the "two-factor economic model" is the simplest one and the one analyzed in detail in this article. This model involves two countries, two products, and two factors of production.

In the model, we assume that all production factors can be circulated between various production departments. For example, capital and labor can be used to produce cotton cloth or food.

Factor income in the Heckscher-Ohlin model.

Since in the two-factor model, producers can choose any combination of production factor inputs, they will decide which resources to use more for production based on the relative costs of the factors. In this scenario, producers will decide whether production is "capital-intensive" or "labour-intensive" based on the relative costs of capital and labor, that is, the ratio of factor prices W/T.

The FF curve and CC curve in the figure represent the relationship between factor prices and the ratio of labor and capital used in grain/cotton cloth production respectively. Therefore, the production of cotton cloth is labor-intensive, while the production of grain is capital-intensive.

At this time, an increase in relative prices will increase the real wage measured using the two commodities and decrease the real rent measured using the two commodities, thus increasing the purchasing power of workers, that is, increasing the real income from labor. However, since the production of commodities is completed simultaneously by labor and capital, when the actual income of labor increases, the purchasing power of capital owners will decrease, that is, the actual income of capital will decrease.

Summary

In general, the main difference between the Ricardian model, the specific factor model and the Heckscher-Ohlin model is that the scenario assumptions and conditions they apply are different. The complexity of the situation also varies. The Ricardian model mainly studies the impact of relative prices on the relative output of commodities in a single factor industry, thereby affecting the income of this single factor.

The specific factor model mainly studies the impact of relative price changes of multiple immobile factors on the income of each production factor in the production of multiple commodities; the Heckscher-Ohlin model mainly studies the impact of multiple immobile factors on the income of each production factor. In the long-term free-flowing production factors in the production of multiple commodities, the impact of relative price changes on the income of each production factor.

Take the scenario in this article as an example. In the Ricardian model, labor is the only factor of production and the production possibility frontier is a straight line because the opportunity cost of food remains unchanged. However, in the specific factor model, the addition of other production factors turns the production possibilities frontier into a curve, reflecting the diminishing marginal returns of labor.

The difference between the Heckscher-Ohlin model and the Ricardo model is that the former has room for choice in the use of production factors, that is, it focuses on the land or labor used to produce a given amount of grain or cotton cloth. quantity, rather than the quantity of factors required to produce the grain or cotton cloth.

From a practical perspective, the latter two models are closer to the current situation of domestic commodity production and international trade, and will be more applicable in the analysis of real cases.