Explain some of the reasons why the HO model is difficult to test empirically. Does this mean that it is not a useful model of trade?
What will be an ideal response?
Problems with accurately measuring factor endowments and standardizing units for that they can be compared make it difficult to test the HO model. The model also cannot capture technological differences between countries, as well as a variety of other factors, such as economic policy, economies of scale, and corporate structure. Even with these issues, economists generally believe that endowments matter and that the HO model is a useful way of explaining the effects of trade on factors of production.
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a. True b. False Indicate whether the statement is true or false