Question

2 Labor and capital intensity across industries
In the context of the Heckscher-Ohlin model with the two production factors capital and labor, we have discussed that industries differ in their labor and capital-intensities.
(a) Define labor and capital-intensity of an industry.
(b) Explain what we mean when we assume that there are no factor intensity reversals.
Illustrate the case of a factor intensity reversal using a suitable diagram.
(c) Imagine a variant of the Heckscher-Ohlin model with two production factors labor and land used in two industries. Define labor and land intensity of an industry in such a model. Can you think of examples of a land-intensive industry versus a labor-intensive industry?

Answer 1

a) Labour intensive industry refer to the industry that requires a large number of labour to produce goods and services.The higher the proportion of labour to capital, the higher industry is labour intensive.

Capital intensive industry refer to the industry that requires a large number of capital to produce it's goods and services.

b)No factor intensity reversal means good A is capital intensive in all the countries and good B is labour intensive in all the countries. All countries have access to the production techniques.

c) Labour intensive industries are those industries that requires large number of labour than capital and land intensive industries are those industries that requires large amount of capital i.e. land than labour. Oil production, transportation sector etc are land intensive industries while tourism is labour intensive industry.