Author Question: Countries do not in fact export the goods the H.O. theory predicts. Discuss. What will be an ... (Read 88 times)

rayancarla1 · **on:** Jun 30, 2018

Countries do not in fact export the goods the H.O. theory predicts. Discuss.

What will be an ideal response?

Question 2

Interest differentials cause exchange rate changes.

Indicate whether the statement is true or false

ririgirl15 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

This statement is not true. Although one may find many cases where it seems to be true (e.g., the Leontief Paradox), all one needs to do in order to render the above statement not (generally) true is to find one counter example. In fact, one can find large subsets of agricultural and commodity products in which the H.O predictions are generally fulfilled. Labor-intensive countries such as Bangladesh do in fact export relatively labor-intensive goods. Capital-intensive countries such as Germany do in fact export capital-intensive products (at least to South countries). Countries such as Costa Rica (sunshine abundant) tend to export bananas (sunshine-intensive products). The U.S. (a wheat-land-abundant country) does indeed export wheat (a wheat-land intensive product). In fact, since the early 1980s, the Leontief Paradox was not found to describe the U.S. trade data (hence ratifying the H.O. theory).

Answer to Question 2

FALSE
Explanation: In the real world interest rates, inflation expectations, and exchange rates are jointly affected by new information and new events. So, interest rates and exchange rates are determined simultaneously.