The Heckscher-Ohlin Model with variable input coefficients in spreadsheets

Abstract

This paper describes the presentation of the Heckscher-Ohlin model of international trade using an Excel workbook. The model consists of a two-factor economy producing two goods. The production of each is represented by a Cobb-Douglas production function. Given the fixed supplies of the two resources, labour and land, the model demonstrates how competitive markets allocate the resources between two competing uses, cloth production and food production. Presenting this model with Excel allows instructors to illustrate production functions, the derivation of the production possibilities frontier, and the effect of prices on resource allocation, inter alia. It also allows the illustration of the effects of changes in technology, factor supplies, or product prices on economic outcomes. Perhaps more importantly, the use of Excel allows students access to a "live" study guide, within which they can replicate and extend analysis presented by the instructor. This provides a deeper understanding of the theory. At the same time, the students are becoming more familiar with the use of spreadsheets, developing a skill that will serve them well throughout their lives.