Question

Suppose Australia, a land (K)-abundant country and Sri-Lanka, a labor(L)-abundant country both produce labor and land intensive goods with the same technology. Following the logic of the Heckscher-Ohlin model, there there is no incentive for (economic-based) migration between the two countries once trade is established between them.

This is true or false? why? illustrations using graphs when required, thanks

Answer 1

"True"

Trade is equivalent to the migration of factor of production from one nation to other. When there is trade between land-rich Australia and labor-rich Sri Lanka, as per Heckscher Ohlin model they will be exporting the goods in which they have abundance i.e. Australia would goods related to land and Sri Lank would export goods related to labor and this trade will increase the return for the abundant factor in respective countries. Which would be same as these resources migrating from one country to other. Taking away the incentive to economic-based migration between both the countries.