Question

For the following scenario, determine whether the statement below is True or False and provide an...

For the following scenario, determine whether the statement below is True or False and provide an argument justifying your answer:

Consider the Heckscher-Olin model of trade between relatively skilled-labor abundant US and relatively unskilled-labor abundant Indonesia where the US exports computers and Indonesia exports cloth. This leads to an increase in income inequality in both countries

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Answer #1

"False"

A trade between the US and Indonesia will lead to Indonesia employing more and more unskilled labor and an increased demand will lead to a higher wages and US will employ its abundant factor i.e. skilled labor and that will increase the demand for its labor and increases the wages. it will make the income equal in there respective countries. As the return for unskilled labor in US will see a decline in the US earlier that were making more and that will also decrease the wages of skilled labor in Indonesia reducing the income inequality.

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