The Virtual International Exchange of Extreme Productive Factors and Sustainability: Case Study of an Efficient Educational Vector

Abstract

In this paper we investigate if The Heckscher Ohlin Model (HOM) acts as an international hero, imposing an optimal import tax on countries or generations operating within the World Technology Frontier (WTF), and an optimal export tax on countries whose Production Possibilities Frontier (PPF) is above the WTF, in order to ensure an equivalent level of satisfaction for all. Using Agent based Modelling on cross-generation and cross-country panel data I find, when HOM imposes an optimal tax, formal sector (industrialized countries or generations) productivity is at its highest, resulting in a low cost of production, and the volume of the informal sector (under-industrialized countries or generations) is at its absolute minimum, with an equilibrium informal sector output at point A on the Graph 1. Economic agents (local authorities), being rational, formalize their activities to take advantage of the low cost of production in the formal sector(industrialized countries or generations). On the other hand, when the volume of the informal sector tends to increase, and their PPF threatens to fall below the WTF, the HOM imposes an optimal export tax (deprotection) to discourage sub-industrialization. This means, the behavior of local authorities tends to bring all companies in the formal sector whose marginal cost is higher than the market prices, close their doors to enter the informal sector (under-industrialized countries), resulting in an increase in informal sector. In other terms, human capital tends to transform multidimensional trade vertically and destructively, indicating that an accumulation of resources is favorable for current generations (developed countries). Intergenerational knowledge and technology barriers (or knowledge and technology barriers between developed and developing countries) harm long-run growth. Although the accumulation of different resources (physical capital, human capital, natural resource endowments, institutional capital, and wealth distribution), generates comparative intergenerational or international trading advantages and gains, it harms global welfare in the long term. This conclusion is a high-level generalization of the Lerner symmetry theorem, which states that a country limiting imports through barriers tends to discourage exports. We therefore recommend a systematic implementation of the HO model with its basic assumptions as the only economic policies for the nation.